Accountancy firms urged to help tackle umbrella company fraud

Accountancy firms urged to help tackle umbrella company fraud

Experts believe action plans are needed to tackle rising umbrella company fraud

Accountancy firms urged to help tackle umbrella company fraud

Accountancy firms are being urged to establish financial crime plans to help combat the rise of umbrella company fraud.

The financial crime plans should set out their approach to areas such as bribery and modern slavery, as well as how to avoid unwittingly helping tax evasion. It would also enable them to tackle umbrella company fraud, which has become more prominent due to the increasing number of temporary workers in the wake of the pandemic.

According to Annette Barker, head of KPMG forensic in the UK, it’s vital for companies to be clear on how they should be handling such issues.

“Businesses have to take ownership of the risks and start protecting themselves,” she says. “They need to join up all the different issues they face into one financial crime plan.”

Barker believes it’s important for companies to examine all the ways in which economic crime could affect their businesses and how such activities can be countered

“It’s good governance to identify all the possible routes and ensure there is a thorough understanding of the processes and controls in place,” she adds.

Barker’s comments come as the number of people in temporary positions has increased sharply since the first government-imposed lockdowns were implemented in March 2020.

In fact, between April 2020 and June 2021, there were 1.6 million temporary employees recorded – 164,000 more than the same period the previous year, according to the data published by the Office of National Statistics.

Of the overall figure, 746,000 people were found to be on fixed-term contracts, 301,000 were agency temping, 284,000 were involved in casual work, and 60,000 were in season jobs.

An umbrella company is essentially a payroll company, according to a recent report by the Trade Unions Congress (TUC), with these organisations are best described as payroll businesses that are used by recruitment firms to operate pay-as-you-earn (PAYE) schemes.

However, some people working under these arrangements have been charged hefty fees for services that were effectively tax avoidance schemes, according to a recent HMRC case study.

Unions have claimed workers have faced misleading and unfair deductions from pay and breaches of holiday leave and entitlement, as well as complaining about a lack of regulation of the sector, the TUC report noted.

KPMG’s Barker suggests enhanced levels of due diligence are required at the company level to understand all the various counterparties that may be involved.

“If there is a subcontracted position – or multiple positions – businesses have less visibility,” she says. “It’s really important they cast their net beyond the initial part of the supply chain.”

A key suggestion is setting up a proper process and controls to check the employment status of individuals that are being provided through umbrella companies.

“This may include doing additional checks when the employees actually come into the business or getting legal advice on the drafting of contracts and clauses, with intermediaries,” she adds.

The whole point is to mitigate the risks being taken.

“Due diligence is very important,” she adds. “It’s all about really getting behind the organisations with which you’re doing business.”

Demand for broader controls

As well as introducing controls for businesses to guard against tax evasion and corruption, some organisations have demanded broader controls.

The Recruitment & Employment Confederation (REC) has called for HMRC to set up a dedicated hotline for workers to report bad practice by umbrella companies.

It also wants to see a legal definition of these organisations that the government can use as a starting point for regulation.

REC CEO Neil Carberry says recruiters want a robust and fair supply chain, where workers’ rights and pay are protected and all parties’ responsibilities are clear.

“Bad-faith umbrella companies have been allowed to thrive alongside compliant businesses for too long,” he said in a statement. “An HMRC-run hotline for reporting bad practice by umbrellas would make it easier for workers to report abuses and help government bodies to coordinate their efforts to stamp out bad practice.”

The TUC wants to see the government go further, with the organisation calling for umbrella companies to be banned.

Frances O’Grady, the TUC’s general secretary, insists many low-paid people working for such companies are being denied promised wages and basic legal rights, such as holiday pay.

“Lots of them are key workers we all applauded, like social care workers, teachers and coronavirus testing staff,” she said. “These scandalous workplace practices have no place in modern Britain.”

She blamed “inadequate regulations” for letting unscrupulous umbrella companies off the hook and allowing them to act with impunity.

“Employers shouldn’t be able to wash their hands of any responsibility by farming out their duties to a long line of intermediaries,” she added. “Enough is enough. It’s time for ministers to ban umbrella companies, without delay.”

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