The HMRC have announced that the first furlough fraud arrests have been made.
Furlough Fraud Arrests
The first furlough fraud arrests have been made according to the HMRC, with a 57 year old man being arrested in Solihull, with his business bank accounts being frozen, premises searched, and computers seized. He is suspected of having committed a £495,000.00 furlough fraud, as well money laundering offences, and a multi-million pound tax fraud. Eight others were arrested in the West Midlands as part of the investigation. Over 100 HMRC officers, deployed in 11 different locations, made the arrests.
Thus far, £27.4 billion has been paid out through the coronavirus job retention scheme, with 9.4 million employees being furloughed by 1.1 million employers. In addition, £7.5 billion has been paid out to 2.6 million people on the Self-Employment Income Support Scheme.
The furlough fraud arrests will likely send a strong message to those who have wrongly claimed under the coronavirus job retention scheme, whether intentionally or not, to make use of the amnesty. To date, over 3800 reports of furlough fraud have been lodged with the HMRC
The acting director of HMRC’s fraud investigation service, Richard Las, stated: "The coronavirus job retention scheme is part of the collective national effort to protect jobs. The vast majority of employers will have used [it] responsibly, but we will not hesitate to act on reports of abuse of it. This is taxpayers’ money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding."
A Minefield
Whilst the furlough fraud arrests send out a strong message to those engaged in deliberate fraud, the complexity of the furlough rules has made use of the furlough scheme something of a minefield, with accidental breaches of the rules highly likely. Tim Stovold, the Head of Tax at Chartered Accountants, Moore Kingston Smith, warned in FT Adviser that companies who have made genuine and innocent mistakes due to the complexity of the rules could end up being adversely impacted. He stated: “Although these rules apply to fraudulently claimed furlough grants, they will also apply where the company has not understood the complex rules of the scheme and claimed the grant in error. HMRC is paranoid about fraud but these powers could make a director liable to repay an amount they never benefited personally from in the first place.”
Amnesty
The furlough fraud arrests should act as a warning, not just to those that have committed deliberate fraud, but also to all those that have claimed under the coronavirus job retention scheme, to double check whilst the 90 day amnesty remains available, whether they have any accidental mistakes. Dawn Register, the Head of Tax Dispute Resolution at BDO Accountants, states that: “The window of opportunity to correct mistakes in furlough claims or other COVID-19 support payments administered by HMRC is to be extended from 30 to 90 days. This is a welcome change that gives businesses a more realistic time period to check their claims and notify HMRC of any corrections. Given the huge volume of government guidance and changes in July already, we consider the extension to a 3 month period is crucial to allow businesses time to review claims and seek professional advice where necessary…..We expect there will be many cases where innocent mistakes are made given the difficult trading conditions for businesses during Lockdown. Also a ‘catch up’ exercise may be needed on paperwork. Businesses should start to check and double check now that their Government support claims are correct.”
