HMRC Aims to Claim Back Fraudulent Covid Support Payments

Posted December 9, 2021

The government is ramping up efforts to claw back money spend on furlough and other support packages. Those individuals and businesses which cannot show that the money was claimed legitimately could be told to pay it back. That will obviously be bad news for anyone who did act fraudulently, but it could also affect people who simply failed to account for the money correctly.

According to a freedom of information request from the Guardian, UK tax officials have launched 26,500 investigations in an attempt to claw back a billion from fraudulent, or incorrect furlough payments. This activity also covers:

The furlough scheme which covered the wages of about 9million Brits at its peak at an estimated cost of £70bn.
Rishi Sunak’s Eat out to Help Out Scheme which spent £2bn on subsidised meals to kick start the hospitality sector.
The self-employment support scheme which cost an estimated £8bn.

The figures appear to be higher than expected. After admitting that it suspected around 8.7% of the money handed out through furlough was claimed fraudulently, the government said it planned to investigate around 30,000 cases. With almost as many investigations opened already, the signs are the true figure will be somewhat higher than expected.

Throughout the pandemic the government maintained a difficult balancing act of ensuring people who needed support could get it while guarding against fraud. Strict rules around furlough governed when people could and couldn’t work.

Likewise, pay outs for self-employment support were assessed according to previous tax returns, a move which caused problems for the newly self-employed who were yet to produce a tax return. Difficult decisions such as this, they said, were necessary in order to reduce the risk of payments being made either in error or as a result of fraud. In both cases, HMRC made it clear that they would take measures to recover any mis-payments.

However, it wasn’t long before claims of fraud circulated. There were stories of companies forcing employees who had been furloughed to continue working from home. These are the cases that HMRC is now attempting to address. They have invested £100 million in a Taxpayer Protection Taskforce and committed 1,265 HMRC staff to combat fraud in the schemes. This, they said, would allow them to increase one to one enquiries up to a total of 30,000.

Since the start of the pandemic, HMRC says it has recovered a total of £812 million. Investigations have been carried out by looking at financial reports, data analysis and with a hotline which encourages people to report those organisations which have been acting fraudulently.

How investigations are handled

To offer an idea of the type of investigations they’ve launched, they include three examples on their website. They include:

A restaurant which claimed to have sold £550,000 of meals on Mondays to Fridays. After HMRC made contact with the restaurant they admitted that 90% of the claims were incorrect, but could provide no evidence for the remaining claims. They were required to repay the full £274,375 claimed.
A company which claimed through the job retention scheme threatened staff with the sack unless they continued working, even if sick. Suspicions were raised via data analysis work and through their hotline. HMRC is currently working to recover £357,000.
Analysis of a business’ credit and debit card sales showed that their trade was comparable to pre-lockdown levels, despite the company claiming to have furloughed all their workforce throughout April and May.

In the case of the self-employment support scheme, meanwhile, HMRC is writing to anyone who has not yet filed a tax return for 2019/20 or who did not include the relevant self-employment or partnership pages. Those who have failed to meet the criteria will be asked to either fill in a relevant tax return or repay the money.

How businesses should respond

The government will not be investigating all instances of suspected fraud. However, these cases highlight some of the measures they will use when making investigations. They will be scrutinising tax returns and accounts to identify where they believe fraudulent or mistaken claims have been made.

Any business or individual who made a claim for one of these support schemes, therefore, will need to make sure they have accounted for them correctly. This will include looking at their accounts and making sure they can show that the grants were necessary. In some cases, businesses may find that the support was not needed. For example, some businesses voluntarily repaid their furlough support money after realising that their business had not been as badly impacted as they feared.

For example, if you look at your sales data and see that business was not significantly affected by COVID-19 compared to previous years, you may expect HMRC to ask you to provide more justification for the pay outs or repay the money.

If you have not accounted for the grants adequately on your tax return, you will also have time to make amendments. Although HMRC levies strict penalties for late filings, unless you have a valid excuse, there will be no penalty for making amendments.

The latest investigation data, therefore, suggests HMRC is taking a harder line than expected in recovering fraudulent claims. It is already close to exceeding its target of 30,000 investigations and will not only recover money where it can see clear instances of fraud, but will also do so when a company cannot provide acceptable evidence. This risks catching those businesses which claimed legitimately, but have not been able to show this in their accounts or have made errors.

With the tax man paying close attention to support payments, therefore, businesses would be well advised to focus on their tax returns and financial reports to make sure they have been filed correctly. This may be challenging. The various COVID support schemes brought with them a number of administrative requirements. Mistakes are easy to make, with HMRC looking to claw back as much as possible, they could prove costly. That’s why it could be worth upgrading the accounts function or consulting experts to have a look at your accounts to ensure everything has been accounted for correctly.