HMRC Tax Investigations: Increase in Furlough Fraud arrests

The Coronavirus Job Retention Scheme has supported 1.1 million employers and 9.4 million jobs through the lockdown, however, the first arrest has been made in connection to alleged furlough fraud.

A 57 year old man from the West Midlands has been arrested following an investigation into a suspected Coronavirus Job Retention Scheme fraud.

Eight other men were also arrested in relation to the investigation which is expected to amount to £495,000 worth of fraudulent activity through the scheme.

How is HMRC tackling furlough fraud?

A business premises in the Solihull area was searched prior to the arrest, where computers and other digital devices were seized.

Fund’s in the company’s bank account in relation to the business have also been frozen. There is a suspected multi-million-pound tax fraud allegation as well as money laundering offences that are also being investigated alongside the furlough fraud.

“The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. The vast majority of employers will have used the CJRS responsibly, but we will not hesitate to act on reports of abuse of the scheme.

This is taxpayer’s money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding.

As usual, we have built steps in to prevent mistakes and fraud happening in the first place, but anyone who is concerned that their employer might be abusing the scheme should report it to HMRC online.”

Richard Las, acting director, Fraud Investigation Service, HMRC

More than 100 HMRC officers were deployed to 11 locations in relation to the investigation where further devices were seized as well as business and personal records.

How has HMRC tried to prevent Furlough Fraud?

According to HMRC, the Coronavirus Job Retention Scheme has four key protections against fraud:

• Employees must have been added to payroll on or before 19 March 2020 in order to limit the use of “fake employees”;
• Claims can only be accepted from employers who are authenticated by HMRC;
• All claims are to be assessed by a specialist team within a 72 hour window; and
• Proportionate and reasonable interventions with customers after the money has been paid.

Rule changes that were enforced since 1 July 2020 are also expected to make furlough fraud less likely as employers are now able to bring furloughed employees back to work for varying amounts of time. However, this would not stop employers from saying employees have worked one day when in actual fact they have worked four days.

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].