HMRC checks & enquiries re Covid-19 support
We reported in our last newsletter that the Government had issued draft legislation confirming the taxability of the various parts of the Government’s support packages. As part of this legislation, HMRC will also be given powers to recover payments to which recipients were not entitled under the Government support schemes (Job Retention Scheme (“JRS”) / Self Employed Income Support Scheme (“SEISS”)) or where the JRS has not been used to pay employees, make pension contributions or pay PAYE or National Insurance contributions. This legislation is being quickly pushed through to become law, in addition to which reports are being picked up of HMRC starting to divert resources to checking claims.
To date, in the region of £27 billion worth of claims have been made under the schemes, but there is growing concern that there are a significant number of bogus or exaggerated claims. The legislation includes provisions to take action against directors for wrongful claims and is expected to introduce a 30-day window for businesses to notify HMRC of any errors.
HMRC has put in place an online portal for employees and the public to report suspected fraud in the Job Retention Scheme and in their guidance to employees it states “If you’re concerned that your employer is abusing the scheme you should report them.” It is understood that HMRC have received in the region of 1,900 reports for fraudulent claims.
We understand the types of fraudulent claims being reported are:
- Employees working while the employer is claiming under the Job Retention Scheme (condition of the scheme, until 1 July, employee cannot do any work);
- Furloughed employees who are still working without their knowledge of being furloughed;
- Furlough claims for non-existent workers;
- Exaggerated claims enabling higher grants to be received;
- Individuals claiming under SEISS who ceased to trade in 2019;
- Individuals claiming under SEISS who have not been adversely impacted by Covid19.
To deal with a HMRC check and to protect the business, proper documentation and evidence supporting claims that you make for Government financial support should be maintained. Per our previous newsletters, to be safe the type of evidence you should have in place and retain include:
- A note of the impact of Covid-19 on your business, together with cash flows and how this justifies the furloughing of staff;
- Computations showing the amount being claimed and how this has been calculated, together with the supporting evidence of each employee’s pre Covid19 salary;
- Postal/email communications between the employer and employee setting out the furlough arrangements and their agreement;
- For furloughed directors, board minutes setting out the reason for the furlough and the agreement of the other directors.
A failure to provide evidence and documents in support of claims will run the risk of having to refund the payments plus penalties and interest or worse, criminal investigation. Remember that when things eventually return to a kind of normality, the HMRC officer of tomorrow may take a very different view to the government’s current generosity in getting as much financial support out to businesses as fast as it can.
The two most likely criminal charges if a business/individual is caught making a false claim are:
- Cheating public revenue – due to the serious nature of the crime, the maximum sentence for cheating public revenue in the UK is life in prison or an unlimited fine;
- Providing false documentation to HMRC – either magistrates’ court or as a summary conviction, HMRC tax evasion penalties can range from a fine of up to £20,000 or up to 6 months in prison.
HMRC are also likely to name and shame.
In moving to the recovery phase, it is highly likely that some employees who have been furloughed may have to be made redundant and may result in a disgruntled employee making a “bogus” report to HMRC. (We have experience of what our client believed to be a disgruntled employee making a malicious report to HMRC of them undertaking a significant amount of unreported cash business, resulting in a protracted enquiry). We would therefore stress the importance of getting all the paperwork in order, which may have been missed or rushed at the end of March or in April, when fighting for survival.
HMRC have stated that whilst tackling serious fraud and criminal attacks, they will not seek out innocent errors or small mistakes for punitive action, but it is necessary to show that it is innocent.
Our update on both these Government support schemes, together with links to the Government sites where full details can be found (which were updated over the weekend), found HERE.