The Government is ramping up their investigations into suspected abuse and fraud of its coronavirus support relief schemes.
HMRC’s current estimate for the amount lost to fraud and error in the schemes during 2020 to 2021 is a total of £5.8 billion against a £81.2 billion spend. 8.7% in relation to the Coronavirus Job Retention Scheme (CJRS), 2.5% in Self-Employment Income Support Scheme and 8.5% in the Eat Out to Help out Scheme.
In response to the fraud risk, Chancellor Rishi Sunak announced in the March 2021 UK Budget the creation of a Taxpayer Protection Taskforce (the Taskforce), with £100m in resources at its disposal, whose primary focus is to target criminals exploiting the government’s various coronavirus business support schemes. Janet Alexander, the Director of the Taskforce, has said that the Taskforce aims to recover £1 billion in loans, grants, and other financial schemes made to businesses in fraudulent and erroneous payments. The Taskforce compromises of approximately 1,250 HMRC operatives. These operatives are responsible for detecting and investigating anybody who has wrongly or fraudulently claimed taxpayers’ money through the government’s various support schemes.
HMRC’s compliance and enforcement activity to date
HMRC’s investigations have started to resolve into concrete action by HMRC on both the civil and criminal side. To date, HMRC has blocked 150,000 ineligible claims and recovered £500 million in 2021. However, this is the tip of the iceberg given the fraud is estimated at £5.8 billion.
Finance Act 2020 (the Act), which received Royal Assent on 22 July 2020, provided substantial enforcement powers to HMRC 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. The Act also empowers HMRC to impose stringent individual accountability on company officers through joint and several liability where there has been a deliberate act to claim or retain grants to which the company was not entitled and the business has become insolvent, or insolvency is considered likely. Further, HMRC are able to charge significant penalties of up to 100% of the potential lost revenue.
HMRC has also been investigating furlough abuse using the Code of Practice 9 (COP9) investigation and fraud procedure which allows taxpayers an opportunity to make a complete and accurate disclosure of all deliberate and non-deliberate conduct which has led to irregularities in tax affairs in order to avoid criminal prosecution.
In relation to HMRC’s criminal action, arrests in 2020 included:
- the first arrest in relation to the CJRS on suspicion of defrauding the furlough scheme out of nearly £500,000; and
- a company director and accountant who were arrested by HMRC officers, suspected of £70,000 fraud involving the furlough scheme.
The pattern continues in 2021 with:
- the execution of a search warrant on 28 April 2021 which resulted in two individuals being arrested on suspicion of a £3.4m suspected fraud relating to the CJRS. HMRC also froze more than £6m held in bank accounts controlled by the suspects;
- on 7 May 2021, two people were arrested in a suspected £3.4m CJRS fraud after HMRC Taskforce officers executed a search warrant. Both were apprehended on suspicion of cheating the public revenue, VAT evasion and money laundering;
- in October 2021, HMRC obtained forfeiture orders of £26.5m obtained during a furlough fraud described as involving “eye-watering” sums brought to light by investigative reporting by the Financial Times.
What should businesses do?
HMRC have themselves said that they have made it “as easy as possible to pay back any money” that has been falsely claimed. In line with HMRC’s stated approach, those who either knowingly or accidentally misused government support schemes should consider self-reporting to HMRC to avoid possible wrongdoing penalties or criminal prosecution.
In view of the fact that HMRC is already actively investigating claims, businesses should, as a matter of priority, carefully review their internal records and systems in order to identify any discrepancies. Where discrepancies are detected, a more detailed and forensic examination may be required before making a disclosure to HMRC.
Employers should ensure any paperwork is up to date and consider collating any documentation which details the business rationale underpinning why certain claims were made. They should ensure not only that they have acted in accordance with the law but also can evidence this with a clear audit trail.
By Michelle Sloane and Michael Goodwin QC of Red Lion Chambers