HMRC TO CRACK DOWN HARD ON COVID-19 FRAUDSTERS

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Further to our article in April, HMRC has been monitoring the extent of fraud related to the various Government COVID-19 assistance packages and will be given new powers in addition to its already broad authority to combat fraud.

Coronavirus Job Retention Scheme (CJRS) Fraud

HMRC is expected to focus on several high-profile companies that it believes may have asked staff to work despite taking the 80 per cent furlough payments from CJRS.  It is a condition of the scheme that employees do not carry out work duties for their employer, whilst furloughed.

As HMRC suspected that this would happen, they created a special reporting hotline, so employees could report abuse of the scheme directly to them.  This has provided HMRC with many leads for follow-up investigation.

If HMRC suspects a company has broken the rules of the CJRS scheme, it will impose a 100 per cent tax rate on the payments.

The Treasury’s decision to take the unusual step of effectively introducing a new tax band has been made to ensure HMRC can use existing powers to prosecute businesses that fail to pay tax demands from Covid-19 payments that it believes were misused, obtained incorrectly or not necessary.

Self-Employment Income Support Scheme (SEISS Fraud

HMRC will also be handed powers to target beneficiaries of SEISS and small companies that received business support grants (the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund and  the Discretionary Grant Fund) of up to £25,000 to help them through the crisis. If HMRC suspects a business did not actually require a loan, or that a sole trader ceased trading soon after receiving money from the SEISS scheme, it will be able to put the burden on those investigated to prove otherwise.

New statutory powers

The draft legislation to hand HMRC the tough new enforcement powers will be added to the Finance Bill, which is currently making its way through Parliament and is expected to receive Royal Assent from the Queen by the middle of August.  The measure will give HMRC the power to raise Corporation Tax/Income Tax assessments to recover amounts from the recipient of a SEISS or CJRS payment to which they are not entitled or where a CJRS payment has not been used to pay furloughed employee costs.  It gives HMRC powers to charge a penalty where a person deliberately makes an incorrect claim for a SEISS or CJRS payment as well as in the situation where a person who has claimed a CJRS payment deliberately does not use it for the costs it was intended to reimburse.

The penalty will only apply if the person fails to notify HMRC about the situation within 30 days, or 30 days after the Finance Bill receives Royal Assent if it arose before that.

HMRC will also be given powers to make a company officer jointly and severally liable for the corporation tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which was never intended to be used to pay furloughed employee costs in certain circumstances. Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled. These powers apply where HMRC can meet certain tests showing there is a serious risk that the company will be unable pay the Income Tax assessment.

Crime and Punishment

Ultimately, a failure to pay 100 per cent of the cash back to HMRC voluntarily or unwillingness to co-operate with HMRC compliance enquiries could result in criminal prosecution.

CJRS Fraud – Potential Criminal Offences

HMRC has several offences under which it could seek to prosecute a company director personally in respect of a CJRS fraud:

  • Failing to prevent tax evasion under the Criminal Finances Act 2017 with a maximum penalty of an unlimited fine. 

For HMRC the last would be the easiest to secure a conviction under as it is a strict liability offence and intent on the company’s part does not have to be proved to obtain a conviction. It is necessary to prove only that there has been criminal tax evasion that was ‘facilitated’ by a person or entity who performed services for or on behalf of the business.

SEISS – Potential Criminal Offences

HMRC has two offences under which it could seek to prosecute a self-employed individual in respect of a SEISS fraud:

  • Conspiracy to Cheat the Revenue which is a common law offence with a maximum penalty of life imprisonment
  • Fraud by false representation under the Fraud Act 2006 with a maximum penalty of 10 years imprisonment

SRC-Time are one of the South East’s leading accountancy firms in advising the self-employed and partnerships in all aspects of their tax affairs and we can assist in any issue raised above.

Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at info@src-time.co.uk  or speak with an account manager to get any process started.







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