HMRC crackdown aims to recover billions from covid support abusers

The government is advancing a determined drive to investigate the massive level of suspected abuse and fraud relating to the Coronavirus support relief schemes, particularly the Coronavirus Job Retention Scheme (CJRS). Michelle Sloane of RPC and Michael Goodwin QC of Red Lion Chambers write

In November 2021, HMRC published its current estimate of £5.8bn ($7.8bn) for the amount lost to fraud and error through the coronavirus support schemes during 2020-21.

There is no doubt that the government is serious about holding those who have acted fraudulently to account. This flows from the Budget announcement on 3 March 2021, that a Taxpayer Protection Taskforce would be created, with the government spending £100m to staff a team of 1,265 within HMRC to tackle fraud within the Covid-19 financial support schemes.

In the period up to the end of June 2021, HMRC launched 7,632 investigations related to the CJRS, with the reporting of possible furlough fraud to HMRC having doubled to 26,232 reports from October 2020 through to March 2021. 

HMRC’s powers

Given the sums involved and the opportunity for furlough misuse, it is not surprising that the Finance Act 2020, which received royal assent on 22 July 2020, provided substantial enforcement powers to HMRC in relation to the CJRS.
HMRC has the power to claw back any CJRS payments made to businesses which were not entitled to receive such payments, or where the payments were not used as required.

In addition, the act empowers HMRC to impose stringent individual accountability on company officers who are deemed jointly and severally liable with each other, and the company itself, for the company’s income tax liability where there has been a deliberate act to claim or retain CJRS grants to which the company was not entitled and the business has become insolvent, or insolvency is considered likely.

Penalties of up to 100% can be imposed for failure to notify the chargeability to income tax where the person knew, at the time the income tax first became chargeable, that the person was not entitled to the CJRS grant.

HMRC has also been investigating furlough abuse using the Code of Practice 9 (COP9) investigation and fraud procedure which allows an opportunity to make a complete and accurate disclosure of all deliberate and non-deliberate conduct which has led to irregularities in tax affairs.

Bank accounts have also been targets in HMRC’s crack down on furlough fraud through the use of Account Freezing Orders and Forfeiture Orders. These are powerful weapons in HMRC’s arsenal and enable it to seize the funds of suspected criminals and their associates, for amounts as low as £1,000.

The threshold for obtaining Account Freezing Orders is extremely low, with HMRC only required to prove on the balance of probabilities that there are reasonable grounds to suspect that the funds in the account are from unlawful conduct or intended to be used in unlawful conduct.

To date in HMRC’s fight against furlough fraud, the majority of arrests have been made on suspicion of cheating the public revenue, VAT evasion, and money-laundering offences but many have speculated that the furlough fraud epidemic is the perfect opportunity for HMRC to debut the Failure to Prevent UK Tax Evasion offence, contained in s45 of the Criminal Finances Act 2017, as it would enable prosecutors to go after larger offending corporates without first establishing the mens rea of the ‘directing mind and will’ of the company.

Conclusion

HMRC and the Taxpayer Protection Taskforce are ramping up their operation to identify and investigate any and all misuse of the government’s various coronavirus support schemes.

It is therefore critical that all businesses, many of whom may have implemented claims in haste when the scheme was first introduced, take the time now to carefully review any claims they have made under the furlough scheme to ensure they have acted in compliance with all the rules and can evidence this with a clear audit trail, should HMRC come knocking.

Any business that discovers that it has received, or retained, payments when it was not entitled to do so, needs to urgently consider what action it should take, including self-reporting to HMRC.

Time spent doing so now could pay dividends in the months and even years to come, particularly as we watch the numbers of arrests increase.

This article was first published in The Accountant