As the Chancellor announces new plans to rejuvenate the economy in the wake of COVID-19, HMRC has warned that it is preparing to crack down on COVID-19 related fraud. The agency has warned that it is investigating around 4,000 companies in relation to claims under the Eat Out to Help Out scheme and that it has identified at least 27,000 cases involving a "high risk" of furlough fraud.
Investigations and enforcement
In November, HMRC launched a policy paper setting out how the tax agency intends to support its customers and the economy. Central to this plan is enforcement action to investigate and recover wrongly or fraudulently claimed support payments.
The policy paper warns that HMRC is "starting to investigate claims in depth" and emphasises that the tax agency is using all the tools at its disposal to do so. Claims made under the Coronavirus Job Retention Scheme, which are at odds with the PAYE data held by HMRC, will be considered in detail and tip offs from the almost 15,000 calls received by the Government's COVID-19 fraud hotline mean that the agency has plenty of leads to investigate. The paper also sets out the protocol for any in-person visits to premises or to meet individuals as part of criminal investigations which will be performed within local guidelines and with PPE.
Responding to an HMRC investigation
The policy paper claims that HMRC aims to conduct tax collection "in a way that recognises the very real needs and challenges that businesses and individuals face." However, despite the extra pressure many businesses have faced during the pandemic, businesses who failed to keep proper records of their claims are expected to be subject to particular scrutiny and will be treated with suspicion by HMRC if they are unable to provide a paper trail for the claims made and the impact of COVID-19 on their business.
In the case of furlough claims, HMRC are likely to expect records detailing the amount claimed, the claim period per employee, the claim reference number, financial calculations, usual hours worked, and actual hours worked. Businesses are advised that they should also prepare to provide HMRC with evidence such as:
- the financial forecasts which supported the rationale for making a furlough claim;
- proof that employees would have continued working had it not been for the pandemic;
- records of how and when employees were notified that they were being furloughed and acknowledgment of this by employees;
- written communications to confirm employees should stop working; and
- details of the procedures used in managing the changes during the furlough period and the procedures for when employees are brought back.
However, the policy paper is reassuring to those businesses that may have made innocent erroneous claims, as the policy paper makes clear that "no one who has tried to do the right thing but made an honest mistake has any need to be concerned, as long as they put it right." HMRC is continuing to write prompt letters to those companies that it suspects may be at fault, urging them to check claims. Those concerned about erroneous claims have a 90 day window from the time at which they received the grant to rectify any error with full immunity from a penalty or other sanction.
As the furlough scheme has been extended to the end of March 2021 and HMRC have taken a rigorous approach in tackling potential fraud, it is crucial for businesses to ensure they have the correct procedures in place, or if an innocent error has taken place, to make a disclosure within the 90 day window in order to avoid penalties of up to 100% additional to the amount to be repaid.
HMRC focus on fraud
There continues to be strong economic and public pressure to tackle those who have misclaimed funds as latest Government estimates suggest that up to 10% of the furlough money could have been wrongly provided: amounting to as much as £3.5 billion. The Government also estimates that payments of £849 million were made to tens of thousands of businesses under the Eat Out to Help Out Scheme, and is looking into how much of this may have been misclaimed.
Although HMRC is keen to strike a balance between aiding economic recovery and the recovery of illegally claimed public money, the policy paper makes clear that HMRC will "continue to prioritise tackling serious fraud and criminal attacks on the tax system". HMRC intends now to focus on compliance checks and any business which is found to have been engaged in "criminal activity, fraud or significant deliberate non-compliance, including avoidance" will not benefit from the leniency which will be afforded to other customers who have been badly affected by COVID-19 or who are helping to tackle the virus.
Those businesses concerned about their claims under the COVID-19 related schemes should consider taking steps to review those claims and the rationale for making them so that any issues can be identified early and addressed.