HMRC’s furlough fraud probes hit 7,400, unsettling limited company directors

A confirmed 7,400 active furlough fraud cases by HMRC are being characterised as only ‘the tip of the iceberg’ by a growing number of advisers to limited companies.

The sheer weight of “compliance interventions” relating to the Coronavirus Job Retention Scheme could even be seized upon to disallow help for directors, fears Forgotten Ltd.

Reflecting on HMRC saying its covid-related probes now total 12,000 (of which 7,384 relate to the CJRS), the campaigner said “fraud risk” is partly why ‘DISS’ has not been adopted.

'Directors a bigger fraud risk, apparently'

“The Director Income Support Scheme provides [HM Treasury with] the least likely scheme to be defrauded, yet still they reject it [partly due to] fraud risk,” Forgotten Ltd says.

“[So] despite the DISS being created as the gold standard for transparency [limited company directors] are, apparently, still a bigger fraud risk than, well, everyone else.”

In the HMRC intervention figures, the furlough scheme is behind the highest number of probes to recover funds through tax avoidance, evasion, fraud, and non-compliance.

'Investigations expected to rise'

Obtained by BLM under the Freedom of Information Act, the HMRC figures also show the CJRS has returned the highest number of arrests – albeit only five (as of March 28th 2021).

But the law firm says 5,020 interventions by HMRC are underway too in relation to the Self-Employment Income Support Scheme, and 424 are underway relating to Eat Out to Help Out.

And many more of the HMRC probes are incoming. “It is expected the number of interventions will continue to rise, as further errors and fraudulent behaviours are uncovered,” says BLM’s investigations lawyer Iskander Fernadez.

“It is easy to say that more should have been done by way of due diligence on each applicant [by HMRC] but given the scale of the pandemic…it is hardly surprising that gaps emerged.”

'Innocent business-owners don't need to worry'

Adviser Jesminara Rahman, who used to work at the tax office, confirmed yesterday that HMRC took a ‘process now check later’ approach to administering covid aid to taxpayers.

But now the checking stage is very much underway, directors who have more than just erred will not be waved through again -- and rightly so, says Rahman, now boss of Tax Resolute UK.

“For any furlough claim…an audit trail has to be kept underlining the furlough claims including how it was calculated and communications with the [grant recipients].

“If minor errors have been made without deliberate intention, then business-owners do not need to worry,” she told ContractorUK yesterday, but then caveated:

“The issue will be where larger discrepancies have taken place and no reasonable explanations can be provided for why there is such an overclaim.

“HMRC will then come down hard on any potential furlough fraud -- as they should, as the CJRS grants were provided in times of need -- not for greed.”

'Rightly so, HMRC is investigating'

Last night, the architect of DISS agreed that company directors do not get a pass just because the government’s income support for them during the pandemic continues to be scant.

“I don’t think it is any surprise that HMRC are opening investigations and rightly so,” Rebecca Seeley Harris, who drew up and submitted DISS in December told ContractorUK.

“The rules were quite clear for those businesses that were using the CJRS. It is unfortunate that the small salary option was only open for the limited company directors, but they still had to comply with the law.”

'Now's the time to have it looked over and checked'

For directors who did not comply, penalties in relation to incorrect claims can be as much as 100% of the value of the claim, advises Tom Wallace, director of tax investigations at WTT Consulting.

“[And such a penalty is] in addition to paying back the incorrect claim,” he advised in a post.

“[So] if you have made a claim in relation to any of the covid support schemes and you are unsure if your claim was correctly made, now is the time to have it looked over and checked.”

'Uncertainty'

Distinct from company directors who make genuine mistakes, fraudsters have taken full advantage of schemes like CJRS which were designed and rolled out quickly amid pandemic “uncertainty,” says BLM.

“In June, HMRC reported that almost £18billion has so far been paid out under CJRS,” the firm added.

“[But given] Bounce Back Loans and the Coronavirus Business Interruption Loan Scheme, it is not unreasonable to suggest that we are talking about [covid support scheme] losses in the billions through fraudulent activity.”  

'Over 91,000 fraud tips'

Out of all the government’s covid support offerings, it is unsurprising HMRC’s focus is on the CJRS, according to Tax Resolute (even though the SEISS has paid out more -- £24.5bn).

“The government has invested £100 million in a Taxpayer Protection Taskforce [comprised] of 1,265 HMRC staff, [although they work on both] CJRS and SEISS,” added the firm’s Ms Rahman.

“[And] there have been over 91,000 fraud tip-offs on HMRC’s fraud hotline.”

'Many, many more probes to come'

Yesterday, Forgotten Ltd cited the same HMRC staff investment, agreeing that it signals more interventions are to come, but it said the new probes would not relate to the DISS -- should it be adopted.

“An initial 13,000 [Revenue] investigations into suspected fraud in the schemes announced have started…[but] we know that there will be many, many more.

“[Indeed] £100 million in extra cash was allocated to HMRC in the last Budget to investigate such fraud. [But…] ask them exactly where this fraud risk is,” the campaigner said, “because we can’t see it in the DISS.”