Potential HMRC penalties: Directors and furlough scheme fraud

£17.5 billion has been paid out in Government grants so far to 8.7 million people who have been placed on furloughed leave. more than a million employers have used the scheme to cover workers wages. HMRC has warned that it will impose a penalty on directors who deliberately flout the rules of the government’s COVID-19 furlough scheme. 

As of 29 May 2020 HMRC have already reportedly received 1,868 reports to its digital reporting service regarding fraudulent use of its furlough scheme.

Got a dispute with HMRC? Our tax team is made up of specialist tax lawyers who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result.

Furlough Scheme Fraud and Warnings to Directors 

In draft legislation that was published on the government website plans were outlined to recover payments people were not entitled to through the various coronavirus support schemes. These schemes will include the Self-Employment Income Support Scheme and the Coronavirus Job Retention Scheme

In the draft tax information and impact note it is warned that in cases of “deliberate non-compliance”, such as where other parties are not aware that one director has misused the COVID-19 schemes, they intend to hold all directors accountable for the fraudulent grants

Directors whose non-compliance with the requirements of the furlough scheme could also fall into the same rules. Therefore, directors who may not have understood the complex scheme and claimed a grant in error will also face a penalty. 

A HMRC spokesperson said that fraudulent claims for furlough limit the government’s “ability to support people and deprive public services of essential funding”.

“We’d ask anyone concerned their employer might be abusing the scheme to please contact us. It could be that you’re not being paid what you’re entitled to, they might be asking you to work while you’re on furlough, or they may have claimed for times when you were working.”

“These reports are just one way that HMRC identifies fraud. Claims are checked and payments may be withheld or need to be repaid if the claim is based on dishonest or inaccurate information. We won’t hesitate to take criminal action against the most serious cases.”

HMRC spokesman

What is furlough scheme fraud?

  • 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.

What is a Tax Investigation?

A tax investigation is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax.

The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information.

It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC.

How will you know if you are subject to a HMRC investigation?

HMRC will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit.

However, if HMRC suspects criminal VAT fraud or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested.

Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility).

It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules.

How long will a tax investigation last?

It depends on the scope and nature of the HMRC investigation. The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses.

It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter.

Expert London Tax Investigation Lawyers

If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.

Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.

We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].

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