Fraudulent companies set up to “mislead” and “steal” furlough pay from supply teachers during the coronavirus pandemic are being flagged to government investigators, Tes has learned.

Some umbrella companies (subcontracted by supply teacher agencies to handle payroll) are being dubbed “non-compliant” for misleading supply teachers and causing “unnecessary complexity” by swapping them between different companies.

The alarm has been raised by the national body that represents umbrella companies, the FCSA (Freelancer and Contractor Services Association), which says it is working with Her Majesty’s Revenue and Customs to help it identify such companies “and their illegal practices”.

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FCSA chief executive Phil Pluck said: ‘Regrettably, the FCSA is being made aware of more and more non-compliant umbrella companies that we understand are misleading supply teachers in order to take advantage of the coronavirus business support schemes introduced by the government, the furlough scheme being one of them.

“We continue to work closely with HMRC to ensure that they are aware of companies who operate in this manner and their illegal practices.

Supply teachers falling victim to fraudulent companies

“A current concern is the emergence of mini umbrella companies, or MUCs as they are referred to by HMRC, who are causing unnecessary complexity by swapping supply teachers between umbrella companies. Again, the FCSA has supported HMRC is helping to identify these schemes which exist to operate fraudulently and steal money owed to supply teachers and HMRC.”

Supply teacher Tim Holden, who has researched government guidance on furlough entitlement and has advised thousands of fellow supply teachers through Facebook groups, said many supply teachers themselves were also reporting agencies or umbrella companies to HMRC after not receiving satisfactory explanations as to how their furlough payments were calculated.

He said he knew of numerous umbrella companies that had been recording payments to individuals that had not been made.

He said: “These [payments] appeared on personal tax accounts and prevented those supply teachers applying for benefits because it appeared to HMRC that they had been paid.

“There have been numerous companies reported to HMRC when a supply teacher’s personal tax account [on the HMRC website] says one thing and payslips say something completely different.”

He added: “Unfortunately, HMRC appears to be snowed under with problems and little or no action is taken against these companies. It might be years before we know the true extent of fraudulent activity.”

The NEU teaching union said “too many” supply teachers had received furlough pay that was “incorrectly calculated or kept artificially low”.

The Recruitment and Employment Confederation (REC), which represents supply teacher agencies, is calling for regulation of umbrella companies.

Kate Shoesmith, REC deputy CEO, said “Where people are employed by an umbrella company, there can be confusion around pay and we’d suggest the best way government could fix this is to define what an umbrella company is and means, and then regulate their activities.

“Recruitment businesses must comply with the conduct regulations, and we think it is essential for umbrella companies to be held to a similar standard. The REC advises its members to always conduct their own due diligence and what to look out for if choosing to work with an umbrella company.”

HMRC guidance warns that the MUC model “presents an organised crime threat to the UK Exchequer” and says “MUC fraud” can lead to ”workers not receiving all they’re entitled to”, as well as “significantly reducing” tax payments to HMRC including PAYE, National Insurance and VAT.

An HMRC spokesperson said: “Mini Umbrella Company fraud creates an uneven playing field for those employment agencies and businesses who follow the rules. HMRC’s is using both its civil and criminal powers to challenge those who are involved and facilitating this type of fraud and has recently made a number of arrests in relation to MUC fraud.

“HMRC has also taken steps to deny the right to recover input tax in cases where it has established that a business in the supply chain knew, or should have known, that there was fraud.”