Earlier this year, HMRC started sending nudge letters to thousands of employers advising them they may need to repay amounts received under the Coronavirus Job Retention Scheme. HMRC is now investigating the position further by opening compliance checks into a company’s affairs. If you received correspondence from HMRC and require advice on an investigation or to appeal a penalty assessment, you should seek legal advice as soon as possible to understand your position and take necessary action.
What is furlough fraud?
The main ways in which a company could commit furlough fraud or abuse of the Coronavirus Job Retention Scheme (“CJRS”) 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.
What is a compliance check or tax investigation?
A compliance check 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 and in this case with tax support payments granted to businesses as a result of the coronavirus pandemic e.g. the Coronavirus Job Retention Scheme (“CJRS”) i.e. furlough scheme.
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.
What will happen if employers are found to not be entitled to furlough payments?
If employers are found to have not been entitled to their claimed grant, the payments can be clawed back by way of a 100% income tax charge regardless of whether the claim was made innocently or deliberately.
Employers will also not be entitled to payments where an employee may have left or the employer has not used the amount to pay the intended costs within a reasonable period.
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 and HMRC have now begun a stream of compliance checks and tax investigations.
Can I appeal against a tax investigation being commenced?
No, you cannot appeal against an investigation being opened. You must cooperate with HMRC as much as possible and it is recommended to seek legal advice as soon as possible.
Once HMRC have concluded their investigation, they may issue a penalty assessment following which 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.
How do I appeal a furlough CJRS penalty assessment?
If a taxpayer disagrees with HMRC, the taxpayer has the following options:
Stage 1: Request a HMRC review: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer 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.
Stage 2: Appeal to the Tax Tribunal: A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible.
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.
What is a furlough nudge letter from HMRC?
You may have received a nudge letter from HMRC which set out a time period for you to take certain action. The intention of the nudge letter is to prompt UK taxpayers into reviewing their tax returns to check whether they need to notify HMRC of any further gains, income or profits which they are yet to disclose. If you are unsure if you have received a “nudge letter” from HMRC, you can see an example of one here.
Whether or not a businesses believes they have over claimed or not they have been told they should contact HMRC either way.
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.
HMRC APPEAL DEADLINES – WARNING
HMRC decision letters containing penalties or imposing assessments offer time limited deadlines within which to appeal. Often these short deadlines (e.g. 30 days) can run from the date of the letter which means you have less time than you think. Your legal rights will become irreversibly time-barred if you fail to take legal action. Therefore, you should seek specific legal advice about your HMRC tax dispute at the very first opportunity so that you understand the time you have left. Failure to take advice or delay in taking action can be fatal to your prospects of success.