UT/2024/000069 - [2025] UKUT 00236 (TCC)

The scheme involved the disaggregation of labour supplies into a network of thousands of interconnected MUCs each employing a small number of workers (SOC paragraph 13). There were over 18,000 allegedly unconnected MUCs in this scheme (SOC paragraph 42).

The MUCs were, however, not independent entities and were not controlled by their initial directors recruited through social media, who were directors in name only and paid to complete paperwork on the instructions of “those involved in managing the scheme” (SOC paragraph 14 and 15). Once registered as a company, a MUC applied, in accordance with an overall scheme to defraud the Revenue, to be registered for VAT and to use the FRS (SOC paragraph 16).

The initial directors of the MUCs were replaced with directors based in the Philippines. These Filipino directors were recruited by Compass Star Ltd, which was integral to the MUC scheme (SOC paragraph 20). Compass Star Ltd advertised for those willing to be appointed directors of MUCs to carry out tasks that would be allocated to them by Compass Star Ltd (SOC paragraph 22). Compass Star Ltd offered to make payments to the Filipino directors, and payments for referrals of additional directors (SOC paragraph 23). The Filipino directors were directors in name only: they made no investment in the MUCs and did not exercise any practical control over the MUCs (SOC paragraph 28).

The MUC scheme depended for its viability on tax advantages obtained from misusing tax reliefs and the MUCs were a key component in the scheme (SOC paragraph 31). The supply chains for the labour were provided by the online platform Supplierland, operated by Mr Funtanilla, the director of Compass Star Ltd (SOC paragraph 36). The MUC supplied its labour to a UK promoter company. It applied for, and was accepted on, the FRS with the consequence that it paid VAT at a percentage of its gross sales to HMRC lower than the standard rate of 20%. However, the promoter received a VAT invoice with VAT at 20%, which it then deducted as input tax. The VAT saving in the MUCs was then ‘swallowed up’ by fees charged by the promoters and back-office service companies so the advantage of using the scheme was not retained in the MUC. Often the tax advantage was passed further up the supply chain by the payment of rebates to the employment agency (SOC paragraph 32).

Compass Star Ltd controlled, or had a significant degree of control in the running of, the MUCs (SOC paragraph 29 and 37).

The MUCs were not independent entities but operated under the same overall control and for the benefit of others (SOC paragraph 38). Control over the MUCs was exercised by “the organisers/facilitators” of the scheme (SOC paragraph 40) and the scheme would have been unworkable if they did not exercise a dominant influence over the MUCs (SOC paragraph 41).

HMRC asserted that the MUCs were set up and controlled by “the Scheme organisers” as part of an orchestrated overall scheme to defraud the Revenue, whether or not the directors of the MUCs themselves were aware of that fact.