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What should we make of the developing story about ‘mini-umbrella company fraud’? Clearly something unsavoury is going on, but trying to piece together exactly what is happening is difficult. Despite the considerable investigatory work which has been done there are obviously many facts still to be discovered. But it does seem beyond doubt that there is exploitation of the employment allowance going on. The most likely explanation is that somewhere in the contractual chain somebody is recharging employment costs at a National Insurance inclusive rate even though contributions are not being paid.
We have seen similar industrial scale exploitation before of course. Some readers will recall the problems with the PAYE online incentives (‘Pavlovian tax’, Taxation, 9 March 2006, page 573), where many small companies were set up purely with the intention of claiming the allowance.
