In the March 2021 Budget the Chancellor announced significant funding would be made available for HMRC to investigate and tackle Covid-19 related tax fraud. HMRC will need to be seen to put this funding to good use. Significant public funds have already been paid out by the Government under various economic support initiatives and HMRC will be keen to show it is able to tackle instances where it believes fraud has taken place. We have already seen increased activity from HMRC and, with the benefit of additional funding it is likely we will see an increase in the number of investigations being opened and, ultimately, individuals being prosecuted in the near future.
Increased support for the economy and an increased risk of fraud
To date, £53.8 billion has been paid out under the Coronavirus Job Retention Scheme ("CJRS") to protect 11.2 million jobs. By the end of March 2021, £20 billion will have been paid out in business grants in addition to £73 billion paid to businesses in the form of loans and guarantees through various temporary financial support schemes. The total figure for all of the Government's Covid-19 support is expected to reach £407 billion by next year.
It was estimated that in 2020 that around £3.6 billion of payments made under CJRS, which the Chancellor announced is to be extended once again to the end of September 2021, were wrongfully claimed and that approximately £2 billion of this amount was linked to fraudulent activity. Whilst last year's amnesty period offered under the Finance Act 2020 created an incentive for businesses to rectify their mistakes, the number of reports of fraudulent furlough claims continues to increase. Importantly, HMRC has confirmed that the reports have captured a mixture of erroneous and fraudulent claims.
The Bounce Back Loan Scheme, which has provided £43.5 billion for struggling smaller businesses, faced criticism for exposing the taxpayer to potentially huge losses due to the roll out of this scheme prioritising speed of delivery over fraud checks. In December 2020 the Government reported that 27,000 fraudulent applications to this scheme, worth £1.1 billion, had been blocked but estimated that between £15 billion to £26 billion of the money paid under the scheme could ultimately be lost through either fraud or credit risk. HMRC is clearly monitoring these loans closely and, given the sums at stake, will need to demonstrate it can investigate cases of suspected fraud.
Stepping up HMRC enforcement
Over the past year, HMRC has opened about 10,000 investigations into suspicious claims under the various support schemes and arrests have been carried out by HMRC and the NCA's complex financial crime team. However, the Government has now announced further plans to take an even tougher stance on the misappropriation of taxpayer money through strengthened HMRC enforcement.
Taxpayer Protection Taskforce
The Taxpayer Protection Taskforce will receive £100 million of Government funding to investigate and prosecute those responsible for mis-claiming some of the £100 billion of taxpayer money spent on Covid-19 related job support schemes (focussing on the furlough scheme and Self-Employment Income Support Scheme).
The new taskforce will deploy a team of 1,265 HMRC officials to assess suspicious claims by reviewing payment data, PAYE records and reports from whistle-blowers to the HMRC fraud hotline, which has already received over 21,000 reports of furlough fraud since the first lockdown.
The Government also plans to crackdown on aggressive tax avoidance, evasion and non-compliance and estimates that this action will raise £2.2bn for the Treasury by 2026. It is notable that in the pre-pandemic 2020 budget the Chancellor pledged to increase the number of HMRC compliance staff by 1,300 and set an aim of capturing £4.4 billion of missing revenue in this parliament.
Following a recent consultation, the Government is set to announce a package of measures to strengthen anti-avoidance regimes to prevent abuse by promoters and enablers of tax avoidance schemes. These measures, which could include publishing details of those being investigated at an early stage of an investigation, are set to be introduced in the Finance Bill 2021.
Upgrading technology and resources
In addition to this, a further £180 million is to be invested into new technology and additional resources to enable HMRC to "reflect the modern economy". The funds will go towards improving HMRC's IT systems, recruiting additional compliance staff, continuing to fund compliance work and tackling non-compliance through illicit financial flows.
Post lockdown recovery
The Budget focused on sustaining the UK economy throughout the remainder of the UK lockdown and into the economic recovery period. Despite a focus on economic support, it is clear that the Chancellor will also prioritise the recovery of Treasury funds by taking a tougher stance on enforcement and anti-avoidance.
The announcements in the March budget signal the Government's increasingly aggressive approach to HMRC enforcement and, whilst it is clear that HMRC's focus is on tackling tax fraud, businesses and advisors should prepare for increased scrutiny of their tax affairs and claims under the support schemes and ensure that protective measures are in place when these support schemes are utilised.