The Umbrella Company Outbreak

Hiathan Nguyen

According to the BBC, more than 48,000 umbrella companies have sprouted up in the UK over the past few years. These companies, created by large corporations, are dodging “hundreds of millions of pounds” in taxes.

The United Kingdom’s Employment Allowance gives small companies a £4,000 discount on National Insurance contributions at the end of each year. According to the Federation of Small Businesses, this aid was supposed to encourage smaller companies to employ more workers. Consequently, it provided a loophole for large businesses to avoid National Insurance contributions. 

G4S, a UK-based security services company, is an example of how Employment Allowance can be manipulated. While COVID-19 hit many businesses hard, G4S opened testing centers to help the UK and bring in some money. However, many of these testing centers aren’t technically owned by G4S, they are umbrella companies operating under the names of foreign directors.

According to the BBC, umbrella companies start by recruiting British citizens through Facebook to create or “front” a company. They will then resign the company to a foreign director (because it’s harder for the government to track down foreign companies), and repeat the process, creating as many companies as they need. The process of “fronting,” although morally wrong, is appealing to those desperate for quick, easy money. 

“At the time, I had broken up with my son’s dad. And he left me in the flat with all the bills to pay. And I only had a part-time job because I had a six-month-old baby. I started doing it just purely to sort of pay the bills,” said Emma, an ex-fronter. Emma was paid £150 per company created, and all she had to do was copy and paste some text into an online portal, create a company, and resign. 

Each umbrella company hires just enough employees to meet the £4,000 allowance, then repeats the process. Putting that into perspective, five of these companies would cost the government a minimum of £20,000. While in the grand scheme of things that probably doesn’t seem like a lot, when thousands of employers are implementing the “umbrella tactic,” it adds up. 

Sources:

https://www.fsb.org.uk/resources-page/what-is-the-employment-allowance-and-am-i-eligible.html

https://www.sableinternational.com/blog/working-through-an-umbrella-company?utm_source=social_media&utm_medium=link&utm_campaign=con

https://www.bbc.com/news/uk-57021128