As a new tax year dawns, the Treasury has announced the creation of another counter fraud task force in an attempt to recover huge sums misappropriated under the COVID-19 support schemes. We consider what this may mean for future investigations and prosecutions and the progress made so far by previous counter fraud teams, in particular the Taxpayer Protection Taskforce ("TPT") and the Fraud Investigation Service ("FIS").
New counter fraud task force
At the end of April 2022 Chancellor Rishi Sunak announced an injection of £25 million to fund the recruitment of a team of data analytics experts and economic crime investigators to the newly established Public Sector Fraud Authority ("PSFA"). They are tasked with tracing, prosecuting and recovering the huge sums of taxpayer money which are estimated to have been lost through fraud and error in the Government's Covid support schemes.
The PSFA is due to be operational as early as July 2022. However, given the time that has elapsed since any potential misappropriation of Covid support scheme payments, the true effectiveness remains to be seen. The TPT received £100 million in funding and so far appears to have struggled to address the scale of fraud arising out of the Covid support schemes.
Current investigation capabilities
The COVID-19 pandemic saw unprecedented levels of financial support being provided by the Government to businesses and individuals to help ease the financial burden caused by the pandemic. However reports about the abuse of Government schemes soon began to permeate and the Government faced calls to tackle fraud relating to the Covid support schemes. To date, it is estimated that £5 billion has been lost to fraud on the Bounce Back Loan scheme and a further £5.7 billion has been lost to fraud and error on other support schemes.
Taxpayer Protection Taskforce
In the 2021 budget, the Chancellor announced the formation of a TPT that would tackle fraud relating to the Covid support schemes. The TPT would be staffed by 1,265 HMRC employees funded by £100 million. It was predicted that the TPT would allow HMRC to increase one-to-one enquiries to 30,000 cases in total, across three years and it was forecast to recover £800 million to £1 billion of mis-claimed funds by 2023. Although recovery figures by the TPT are so far unavailable, the creation of the new taskforce suggests that its aims are not being met. HMRC's annual report, due to be published later this year, will likely shed more light on the progress that the TPT has made and possibly the need for a further task force.
Fraud Investigation Service
Established in 2016, the FIS has a reputation for being HMRC's elite team of tax evasion and tax fraud investigators. It is staffed by experienced investigators who were brought together from HMRC's Special Investigations Unit and Criminal Investigations Unit. It is curious that the FIS were not tasked with investigating COVID-19 related fraud, particularly as there has been a steady decline in investigations initiated by the FIS over the last few years.
Pursuant to a Freedom of Information Request made by this firm, HMRC released figures showing that since 2016 the number of investigations initiated by the FIS has steadily decreased from 21,521 to 8,435 in the year 2020-21. The percentage of these investigations which were criminal was at around 4% between 2016 – 2020, but dropped to 2.5% in the year 2020-21, meaning that only 212 criminal investigations were opened in that year, down from almost 1,000 in 2016-17. This decrease in criminal investigations is that it cannot be attributed to the work being undertaken by the TPT as its mandate only concerns fraud connected with the COVID-19 schemes and there is strong evidence that fraud of all types rose during the pandemic, with UK Finance reporting that "criminals used the COVID-19 pandemic to target victims online, through impersonation scams, romance fraud and investment scams."
The record so far
In January 2022 Lord Agnew of the House of Lords resigned over the Government's weak response to COVID-19 support scheme fraud. The Public Accounts Committee has described the Government's handling of the issue as "unacceptable". The latest announcement of yet another new taskforce to deal with this problem appears to be tacit acknowledgement that other teams are proving ineffective in their efforts to recoup the money that was fraudulently claimed.
So far, there appears to be a gap between the rhetoric concerning steps being taken to tackle tax fraud and the reality of HMRC's attempts to do so. When one considers that the TPT was expected to recoup £1 billion over a span of two years – a sum which the FIS has only managed to do since its creation in 2016 – it would appear that the TPT has a steep hill to climb if it is to achieve its stated aim within its deadline.
Now, over two years on from the launch of some of the support schemes, the PSFA will face an even greater challenge as investigators grapple with tracing the funds so far after the fraud took place. The announcement of a new taskforce at the beginning of a new financial year for the Treasury suggests that the Government is reinvigorating its efforts to grapple with this serious issue and loss.
The road ahead
Tackling fraud as a whole has become a pivotal issue for the Government in the UK. Notwithstanding this intention, increasingly it appears that this is not translated into effective action on the part of enforcement agencies like HMRC. Indeed there is already in existence a vast array of statutory powers that are designed to tackle wrongdoing and give power to bodies like HMRC to take enforcement action in this very situation.
Alongside the launch of the PFSA was a pledge by the British Business Bank, which fully guaranteed all Bounce Back Loans, that the commercial banks that issued these loans without proper due diligence could now expect to face challenge in respect of their conduct. It may be that this type of threat may be the impetus for increased recovery and prompt action in this space.
Although it appears that HMRC's existing taskforce did not meet its expectations, taxpayers and businesses should remain diligent and prepared for HMRC making enquiries into historic COVID-19 support payments. The latest announcement should act as a reminder to businesses that HMRC's mandate to recover misappropriated funds is in full force and that businesses should continue to ensure their records are in check. Given that HMRC are focussing on recovering funds claimed both fraudulently and erroneously, it is imperative that businesses review their historic claims and, in the event that an innocent error has occurred, contact legal representation to ensure that prompt disclosures are made to mitigate any penalties or further action from HMRC.