An HMRC taskforce of more than 1,000 officers is in pursuit of fraudulent claims for coronavirus (COVID-19) support. HMRC are pursuing criminal sanctions, which means that notification of investigation shouldn’t be ignored. However past issues may have arisen, a proactive approach with HMRC is vital - as is a forensic understanding of how and where problems crept in. In this blog we seek to answer the following: Who’s at risk? What’s at stake? How should your business respond if issues come to light?
From the Coronavirus Job Retention Scheme (CJRS) to bounce back loans, Government grants and credit guarantees, government initiatives have provided a vital lifeline for companies affected by lockdown and loss of trade. Inevitably, the costs have been significant. The bill for Government support for businesses is expected to reach more than £150 billion according to the May 2021 National Audit Office COVID-19 cost tracker.
The scale of the costs has put recouping money lost through fraud at the top of the agenda for the Government and HMRC. In September 2020, HMRC's permanent secretary, Jim Harra, said: "We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme [CJRS] could be between 5% and 10%.”
The accuracy of this figure is hard to gauge as it’s an ‘assumption’ rather than the result of detailed analysis. But it does highlight HMRC’s intent. The Treasury has since earmarked £100 million for a Taxpayer Protection Taskforce targeting any parties who've exploited UK Government support schemes.
So who are the main perpetrators? Some of this fraud has been committed by organised crime groups. Following investigations, arrests of alleged offenders have begun.
The people acting with clear criminal intent also include dishonest business owners, who saw that money was freely available, and believed they could make a false claim. Common instances include claiming CJRS grants while still expecting supposedly furloughed employees to carry on working. Many of the whistle-blowers who’ve triggered HMRC investigations are people who’ve been made to work when they shouldn’t have been. We have also seen a significant amount of chatter and posts on discussion forums regarding having to work during furlough or a lack of confidence in an employers’ calculation of payment.
But these top two layers are just the tip of an iceberg that extends down through companies that have acted negligently, carelessly or too hastily. HMRC has enacted wide ranging powers, and has allowed employers to make good or repay over-claimed values - with the intention of encouraging self-review for the largest claimants through correspondence and engagement via enquiries. There are also directors who’ve made a genuine error or been unaware of fraud within their organisation structure. Under the new corporate criminal offence, these individuals could also find themselves in the firing line for failing to prevent dishonest behaviour. HMRC’s powers cover both civil and criminal scenarios.
In these scenarios, “I didn’t know” or “I made a mistake” aren’t a legal defence. Any excuses about claims made in haste or without a full understanding of the rules are likely to be weakened by the fact that businesses have already had a 90-day grace period to notify the HMRC of overpaid grants.
Secondly, the bars for internal controls and personal accountability are rising. The recent BEIS consultation envisages future legislation that includes a requirement for “directors of Public Interest Entities to report on the steps they have taken to prevent and detect material fraud”. In addition, Joint Liability Notices on Directors (introduced in the Finance Act 2020) can make directors of the company jointly and severally liable for debts of the company in cases of deliberate tax evasion where there is a serious possibility of entering liquidation.
Beyond the criminal sanctions, is the risk of severe reputational damage. However innocent the oversight might have been, businesses and directors found to have committed offences will be seen as misdirecting taxpayer funding that should have gone to support lives and livelihoods.
Many businesses are only now appreciating the focus on CJRS and other government grant claims as they come under enhanced scrutiny under statutory audits and on completing the corporation tax returns. It is critical that businesses are able to prepare and maintain robust documentation and evidence to support their claim and also mitigate against any future penalties which could be up to 100% of the overclaimed relief.
With a dedicated team of 1,250 HMRC personnel probing for fraudulent claims and notices of investigation being sent out, an investigation needs to be taken seriously. A recent Freedom of Information request has found that there are 7,384 HMRC compliance investigations underway in relation to CJRS, and a further 5,020 for the Self Employment Income Support Scheme. What if you have concerns that some of your claims weren’t quite right, or a HMRC letter has landed on your doorstep. How should you respond?
With the CJRS and other Government support likely to run until at least the autumn it’s clearly important to keep fraud at bay.
If HMRC notifies you that it has concerns it wants to look into, it’s important to move quickly to engage support but also to pause, and take stock to consider exactly what it is they are enquiring about. The key is taking a forensic approach to establishing the facts and gathering evidence capable of providing an independent source of the truth and withstanding scrutiny. Working with advisers who are experienced in HMRC investigations, really helps to ensure that all mitigating factors are considered, and that any sanctions are fair.
If wrongdoing does transpire, it is possible to mitigate the outcome by having a clear understanding of the facts, and setting out genuine reasons why, and also by showing that overpayments were much smaller than the HMRC investigators claim. This can include carefully documenting and testing controls and processes, including demonstrating that your Senior Accounting Officer and Corporate Criminal Offence controls were otherwise robust and properly enforced.
The foundations of a thorough investigation to establish the facts are comprehensive document review, interviews and data analysis. This includes a review of systems that might substantiate whether or not individuals have been working while furloughed (e.g. staff attendance logs, audit logs, etc.). The forensic approach is important as it also looks at sources of information that have been deleted, and doesn’t take things at immediate face value. Forensic data analytics also can help apply a rigorous approach across large volumes of data.
If you have received notification from HMRC, or would like to discuss any of the issues raised in this article, please feel free to get in touch with one of our specialist team of tax and forensic advisers.