HMRC estimates that £3.5 billion has been fraudulently or erroneously claimed under coronavirus support schemes. The full extent of the problem may not become clear for some time, but what is clear is that HMRC are actively investigating suspicious claims. Where a business suspects that an erroneous claim has been made urgent advice should be taken on next steps, since the Finance Act 2020 provides for an amnesty period in respect of certain claims made under the furlough scheme and other coronavirus support schemes.
Gareth Davies, the auditor general at the National Audit Office, recently spoke to the Guardian about both the furlough scheme and the bounce-back loan scheme for businesses and how they have been a target for fraudsters.
HMRC is understood to be in the process of reviewing 27,000 high risk claims, which criminal investigations already having begun in relation to suspected fraud. This is unsurprising in the case of the bounce-back loan scheme, given the removal of the usual processes for checking out the applicants for the loan and whether they have the ability to repay them or made duplicate claims.
It is equally unsurprising in the case of the furlough scheme following the implementation of the Finance Act 2020. Amongst other things, it establishes that income tax is chargeable on coronavirus support payments that have been fraudulently claimed.
Schedule 16 of the Act deals with taxation of coronavirus support payments, with paragraph 8 covering charges if a person has claimed a coronavirus support payment to which they are not entitled.
"A recipient of an amount of a coronavirus support payment is liable to income tax under this paragraph if the recipient is not entitled to the amount in accordance with the scheme under which the payment was made."
In the case of a payment under the furlough scheme, a person may cease to be entitled to retain the amount after it was received due to a change in circumstances, or because the person has not, within a reasonable period, used the amount to pay the costs which it was intended to reimburse.
The amount of income tax chargeable under the 2020 Act is the amount equal to so much of the coronavirus support payment as the recipient is not entitled to, and as has not been repaid to the person who made the coronavirus support payment.
However, there may be a solution if you identify that the furlough scheme, or another coronavirus support scheme, has been misused. Schedule 16, Paragraph 12 of the 2020 Act allows an amnesty period within which a person who has received a payment they were not entitled to can notify HMRC. The duration of the notification period runs from the day on which the income tax became chargeable and ends on the later of—
(a) the 90th day after the day on which the Finance Act was passed – 22 July 2020, or
(b) the 90th day after the day on which the income tax became chargeable.
In the event of failure to notify, a penalty will be payable. For claims made in error before 22 July 2020, when the Act was passed, the last date for notification is 20 October 2020. All recipients of payments under the scheme should be taking steps now to check that payments received under the scheme have been used for their intended purpose and in line with the respective scheme rules.
There is no equivalent amnesty period in relation to the bounce-back loan scheme. However, proactive investigation and self-reporting is to be encouraged if businesses identify that the scheme has been used improperly.
Look out for our next update when we will be reporting on HMRC's latest statement on investigation of corporate criminal offences concerning tax evasion. In the meantime, please do get in touch with a member of the team if we can assist you with any of the issues discussed in this update.