HMRC Escalate Investigations into Furlough Fraud

As at midnight on 16 August 2020 the value of claims made by employers to HMRC under the furlough scheme is over £35.4 billion. Almost 1.2 million employers have taken advantage of the furlough scheme, furloughing or flexibly furloughing 9.6 million jobs (see here for more information).

The COVID-19 pandemic has brought with it a number of challenges, including the Coronavirus Job Retention Scheme Fraud known more colloquially as ‘Furlough Fraud.’

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.

What is the furlough scheme?

The Coronavirus Job Retention Scheme (CJRS), also known as the furlough scheme, is the provision made by the UK government to assist businesses in retaining employees during the COVID-19 pandemic. The scheme pays a percentage of the wages of employees that are furloughed by their employer due to COVIC-19, with the aim of avoiding the need to make staff redundant at this time.

One of the requirements of the scheme is that furloughed employees are not allowed to work for their employer at this time.

What is furlough fraud?

The main ways in which a firm could commit furlough fraud include:

  • Asking a furloughed employee to return to work as a ‘volunteer’ without pay;
  • Not informing the staff that they have been furloughed, so the worker only finds out when they receive their wages;
  • Not paying employees the full amount received from HMRC;
  • Employers making backdated claims that include periods in which the employee was working;
  • Employers pretending to hire staff shortly prior to the qualifying period to take advantage of the payments.

Jim Harra, HMRC’s chief executive, told the Treasury select committee on 8 April 2020:

We are going to be paying out a vast sum of money in a rapid period of time. Any scheme like this is a target for organised crime. Any scheme that pays out I’m afraid attracts criminals that want to defraud it and people that are genuinely entitled to it who inflate their claims.

The Criminal Finance Act 2017 gives HMRC an arsenal of civil remedies, which includes the right to charge 100% tax on wrongly claimed furlough payments and, importantly for company officers, the ability to make a company officer pay a portion of the company’s penalty where there has been a deliberate act or failure attributable to that individual. Importantly, the Act also places an obligation on businesses to notify HMRC of any wrongly claimed payments.

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.

How will deliberate furlough fraud be treated?

Deliberate behaviour that is not corrected using the amnesty time limit will also potentially expose employers to HMRC’s criminal powers, as well as HMRC’s powers to publish details of deliberate tax defaulters in order to ‘name and shame’. In July HMRC made it’s first arrest in a ‘dawn raid’ as part of an investigation into a suspected £495,000 furlough fraud.

By August 2020, HMRC had received almost 8,000 reports of furlough fraud on their Fraud Hotline.

Can you appeal against a tax investigation being opened?

No, unfortunately you cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving Notice of Appeal to HMRC. HMRC will either confirm their first decision, amend their decision or agree with your assessment.

If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an internal review of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer.

You could also appeal to the First Tier Tax Tribunal if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision.

We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.

Detailed advice on HMRC Tax Appeals can be found here.

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.

Want legal advice from Tax Solicitors on your case?

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