The Finance Act 2020 – clamping down on ‘Furlough Fraud’

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In a recent article which can be found here we discussed that HMRC was to regain its status as preferential creditor in insolvencies. The Finance Act 2020, enabling that change, was given royal assent on 22 July 2020 and confirmed that HMRC’s new status in insolvencies will take effect from 1 December 2020.

The Act also introduced a number of new measures to assist HMRC to remedy the misuse of the Coronavirus Job Retention Scheme (CJRS) and Self-Employment Income Support Scheme (SEISS) (the “Schemes”), abuses which are commonly referred to as ‘furlough fraud’.

It is widely known that the support schemes introduced by the government to combat the effect of the coronavirus lockdown on the economy have been misused. However, with over 7,000 reports being made to HMRC and the first arrest for furlough fraud taking place on 9 July 2020, it is clear that steps are being taken to remedy the issue.

The new powers under the Act provide HMRC with an arsenal of civil penalties it can pursue, including the right to charge 100% tax on wrongly-claimed furlough payments, regardless of whether they were received deliberately or accidentally, and the ability to make a company officer pay a portion of the company’s penalty (up to 100%), where the penalty is due to a deliberate act, or failure attributable to that officer.

It is important to note that the Act also places a legal obligation on businesses to notify HMRC of any wrongly claimed payments. Taxpayers have 90 days from the date the Finance Bill 2020 was introduced (on 22 July 2020) to notify HMRC of an overclaimed grant, giving until 20 October 2020. Due to the emergency nature of the applications for the Schemes, HMRC are likely to be reasonably lenient where simple errors have been made and grants overclaimed. However, we anticipate that such leniency will not extend to a failure to notify HMRC of overclaimed payments.

As well as facing criminal sanctions and civil penalties, businesses that fail to notify a deliberate overclaim of a grant also risk being recorded on HMRC’s publicly available list of deliberate tax defaulters, an outcome which could detrimentally affect its ability to secure funding in the future. It is essential that any overclaimed grant, whether deliberate or accidental is notified without delay. See the HMRC website for more information and guidance on this.

Finally, company directors who have deliberately secured payments under the Schemes to which they are not entitled and failed to make any declaration could also be at risk of disqualification due to unfit conduct.

If you are an officer holder who considers that a director has acted improperly in obtaining a grant, or have any other concerns, please contact our Dispute Resolution team to find out what you can do next.

RELATED:   DISPUTE RESOLUTION TEAMTHE RETURN OF CROWN PREFERENCE IS CONFIRMED BUT DELAYED


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