Have you received one of these letters from HMRC?

Several of our clients have. HMRC is writing to agencies and businesses about the risks of mini umbrella companies (MUCs) in labour supply chains. If you’ve had one of these letters land on your desk, you’re not alone — and it’s a warning you shouldn’t ignore.

They’re small, short-lived companies created to exploit government reliefs intended for genuine small businesses, such as the VAT Flat Rate scheme or the Employment Allowance. A recent Upper Tier Tribunal decision confirmed that this type of model is fraudulent. And according to ICAEW, as many as 275,000 workers are currently engaged through non-compliant umbrella companies, costing the Exchequer around £500 million in lost revenue.

The risk is not sector specific. Any business using temporary labour could be exposed. The danger isn’t just theoretical: if HMRC finds that you “knew or should have known” about fraud in your chain, you could lose the right to reclaim VAT, face tax liabilities, or even be held personally responsible as a company officer.
From April 2026, the stakes will rise further. Draft legislation will make recruitment agencies directly responsible for PAYE on workers supplied through umbrella companies. In other words, liability is creeping upstream, and businesses cannot afford to be passive.

What should you do? First, review your labour supply chain. Don’t assume a long-standing provider is risk-free — MUCs are often buried low down. Second, carry out meaningful due diligence. HMRC highlights red flags such as unusual company names, unrelated business activities, foreign national directors with no clear UK presence, and frequent movement of workers between connected entities. If you spot them, dig deeper.

For our part, we’ve been advising clients not to use mini umbrella models at all. The compliance risks, reputational exposure, and administrative headaches far outweigh any perceived benefit. Where umbrellas are used, it’s vital to insist on transparency and to keep audit trails of the checks you’ve made.
If that letter from HMRC has landed on your desk, treat it as a prompt to act, not a warning to file away. Mini umbrella fraud is firmly on the enforcement radar — and businesses that fail to get their house in order could find themselves carrying someone else’s liability.