By applying for an account freezing order (which can be for a sum as small as £1000), HMRC can prevent money being withdrawn from or deposited into accounts linked to suspected criminal activity or money that is suspected of having been obtained by unlawful conduct.
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Why has there been an increase in the number of Asset Seizure Orders?
In January 2018 forfeiture orders and forfeiture notices were introduced. These can be used to directly seize money that is suspected of having been obtained by unlawful conduct. Forfeiture orders are issued by the Magistrates’ Court, whereas forfeiture notices are issued by regulatory bodies, including HMRC.
Prior to the introduction of these powers regulatory bodies had fewer options available to seize money directly from bank accounts without having to charge the person of suspected wrongdoing first. This is likely to be the reason for the significant increase in the number of freezing orders as HMRC no longer has to bring any allegation of criminal wrongdoing.
What is a freezing order?
A freezing order is used by a creditor who may be concerned that a company may wish to sell their assets rather than pay what is due to the creditor. The freezing order will allow almost any asset to be frozen which may include: company bank accounts, property, land or investments and shares.
The freezing order will not, however, prevent the company or individual from borrowing money and if they are to borrow money following the order being put in place the borrowed money is not classed as an asset.
When a freezing order is granted by court it is endorsed with a penal notice in case a respondent does not comply, it will be contempt of court and face a fine.
Why is HMRC using freezing orders?
HMRC are most likely at the moment using freezing orders to seize money in accounts of suspected fraudsters in relation to the government’s £360 billion coronavirus stimulation package.
Businesses that have also been suspected of abusing the coronavirus job retention scheme could have their accounts frozen for up to two years. It has been suspected that employers could exaggerate claims if they are struggling during lockdown, especially with government plans to further extend the job retention scheme to include part-time working.
The main types of furlough fraud that have been identified are:
- A company furloughs staff but asks them to continue to work or volunteer unpaid.
- Companies furlough staff without telling them. The workers only find out when they are paid.
- A company claims furlough money for a “ghost” employee who may be someone they dismissed or “recruited” so they could claim the money.
HMRC has warned that it would hold directors “jointly and severally” liable in cases where partners in a firm were unaware another partner had made a claim in the scheme on the assumption that “each partner is taken to know anything that any of the other partners knows”.
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