• Home
  • Latest
  • Taxpayer Protection Taskforce makes arrests for furlough fraud

Taxpayer Protection Taskforce makes arrests for furlough fraud

Posted on 12 May 2021

Officers from HM Revenue & Customs' (HMRC)  Taxpayer Protection Taskforce executed a search warrant on 28 April 2021, following which a man and a woman were held on suspicion of cheating the public revenue, VAT evasion and money laundering in relation to a suspected £3.4 million tax fraud linked to the Government's Coronavirus Job Retention Scheme ("CJRS"). The pair has been released under investigation following interviews, but HMRC has frozen over £6m held in bank accounts controlled by the two individuals.

Taxpayer Protection Taskforce

There have already been various arrests for CJRS-related fraud but these most recent arrests are the first following the announcement of HMRC's Taxpayer Protection Taskforce. This taskforce was introduced in this year's March Budget specifically to investigate those believed to be mis-claiming money from the government related job and business support schemes. In the March Budget the Chancellor announced that the taskforce would be staffed by 1,265 HMRC officials and would receive funding of £100 million.

This taskforce has been reviewing payment data, PAYE records, and reports from whistle-blowers to the HMRC fraud hotline (notably, HMRC received 91,000 whistle-blower calls in the first nine months of its operation). These recent arrests indicate the taskforce is now at the stage where it is moving from reviewing its data to taking action.

Fighting furlough fraud

£61 billion in financial support has been claimed under the furlough scheme, which launched in March 2020 and is currently intended to be in place until September this year. The latest figures released by HMRC show that the scheme is supporting the salaries of 4.2 million workers.

HMRC has indicated that the scope of erroneous or fraudulent claims is significant. HMRC estimates that one in ten mid-sized businesses may have incorrectly applied for furlough support (whether innocently or intentionally) and that one in five have not reviewed their initial claims to ensure accuracy. Current estimates suggest that between £2.9 billion and £5.8 billion has been lost to fraudulent or erroneous claims made under the CJRS so far.

HMRC has also been granted increased powers to deal with fraud under the Finance Act 2020. HMRC is able to recover payments wrongly claimed by businesses and impose financial penalties of up to 100% of the amount mis-claimed, should it deem it appropriate to do so. Separate from these civil penalties, there are also potential criminal sanctions for those who have wrongfully claimed under the CJRS. Individuals responsible for wrongful claims may face arrest for criminal offences and businesses could face liability under the offences for failing to prevent the facilitation of tax evasion; an offence introduced in the Criminal Finances Act 2017.

In spite of HMRC's own estimates for how widespread this problem is, it has taken limited criminal enforcement action to date. Since the CJRS was announced in March 2020 these most recent arrests mark only the third publicly reported criminal investigation into CJRS fraud.

The horizon for HMRC enforcement

To date HMRC's preferred tactic has generally been to deploy amnesties or send "nudge" letters to those suspected of mis-claiming under the support schemes. These letters have been sent to urge businesses claiming CJRS payments to reassess their claims and report any errors before a formal investigation is initiated. However, given the perceived scale of potential fraudulent CJRS claims, HMRC is now coming under increasing pressure to crackdown on fraud, not least of all from the Treasury Select Committee. During questioning, Dame Angela Eagle commented that the introduction of the CJRS created "literally six months of completely free goes at the system without any real checks". She went on to describe the scope of subsequent compliance checking by HMRC as "pretty dismal". The Treasury Select Committee was unimpressed by the suggestion that it was more cost effective to prevent fraud in the first place; Dame Angela Eagle remarking "that horse has bolted."

These most recent arrests suggest that HMRC is now reacting to the pressure from the MPs and is actively pursuing suspected high value fraud cases. Further arrests as part of investigations carried out by HMRC seem likely in the near future, particularly as lockdown measures are lifted and HMRC is able to conduct visits to employers being investigated.

If you would like further information on the above or to discuss how we can assist you please contact either a member of the White Collar Crime & Investigations Group, or the Tax Disputes & Investigations department. These teams are able to advise on the full range of HMRC investigations.

How can we help you?
Help

How can we help you?

Subscribe: I'd like to keep in touch

If your enquiry is urgent please call +44 20 3321 7000

Crisis Hotline

COVID-19 Enquiry

I'm a client

I'm looking for advice

Something else