- Furlough & fraud investigations: which businesses and self-employed individuals are on HMRC’s hit list?
Furlough & fraud investigations: which businesses and self-employed individuals are on HMRC’s hit list?
Furlough & fraud investigations: which businesses and self-employed individuals are on HMRC’s hit list?7th July 2020 - Published by
When the Chancellor Rishi Sunak announced the Coronavirus Job Retention Scheme (CJRS) – commonly known as the furlough scheme – on 20 March 2020, the largest wage support programme in UK history was launched. It was joined by the Self-Employment Income Support Scheme (SEISS) on 26 March 2020 and the Treasury has since spent an estimated £30 billion to support the UK economy through these two programmes alone. Here Robert Levy, executive partner and head of the specialist tax investigations team at Kuits, discusses the landscape for fraud investigations by HMRC and which businesses/self-employed individuals should be worried.
HMRC recognised early the scope for fraudulent claims being made under both of the CJRS and SEISS schemes, and have made no secret of their intention to use all means at their disposal to investigate businesses and individuals where they see the hallmarks of fraud. This will include taking reports from whistleblowers under their online tax fraud reporting portal, utilising the unrivalled power of their state-of-the-art data mining and analytics program “Connect”, and the full range of their civil and criminal powers.
Like all tax fraud, this is not a victimless crime and there is likely to be wide-ranging community support for an aggressive stance to be taken against those who have perpetrated it.
The most obvious example of fraud in relation to payments to the self-employed under the SEISS is falsely claiming eligibility under the programme and that businesses have been adversely affected by coronavirus.
The most obvious examples of fraud in relation to furlough under the CJRS include:
- falsification of payroll and other records;
- asking employees to work while furloughed either for their contracted employer or a connected entity (pre–1st July 2020, when rule changes permitted flexible furloughing for the first time) or misstating the extent of time worked under flexible furlough (post–1st July 2020);
- furloughing employees without their knowledge and claiming for them under the CJRS while they continue working;
- paying employees in cash to cover any of the above frauds
There is evidence that employees have in some cases been threatened with losing their jobs or deportation unless they go along with the fraud. Employees who have been subjected to this kind of abuse are likely to be willing whistleblowers. As of May 2020, HMRC were claiming more than 1000 active enquiries and they are believed to have received over 3000 complaints from employees to date. These numbers will climb substantially as public awareness of these frauds increases. HMRC’s Risk and Intelligence Service and Fraud Investigation Service are already believed to be devoting substantial resource to this area.
Investigations may be civil or criminal; in civil cases, taxpayers can be expected to be forced to return any overpayment, plus potentially eye–watering penalties. In cases taken up for criminal investigation, the stakes include large fines and potentially imprisonment. Enquiries taken up in relation to the CJRS and SEISS are likely to spread into other areas of the business, as HMRC can be expected to take the view that business owners who are prepared to commit fraud in relation to these areas are equally likely to commit fraud in other areas.
Reputational damage is almost a given, as the press can be expected to take a serious interest in those identified as having deliberately abused the system. HMRC can, similarly, be expected to publish details of deliberate defaulters falling within the range of their ‘naming and shaming’ powers. Banks and trading partners are unlikely to be impressed.
HMRC are shortly expected to grant a 30–day ‘amnesty’ for wrongdoers to come forward, after which the hunt will be on. In all cases, we would urge defaulting taxpayers to take expert legal advice under legal professional privilege (that is, communications between lawyers and their clients made for the purpose of seeking or giving legal advice remain confidential) and get into HMRC before HMRC get into them. The chances of being caught and the resulting personal and business impact are high for those who do not take this advice.
Kuits is recognised by Legal 500 as one of the leading tax investigations law firms in the country and is experienced in advising individuals and companies faced with serious fraud enquiries by HMRC. To speak to an advisor under the complete confidentiality of legal professional privilege, call 0161 838 7867 or email email@example.com.