HMRC’s first Furlough Fraud arrest just the tip of the iceberg, Inevitable that innocent businesses will also be caught up in furlough fraud investigations

HMRC has made its first arrests relating to the misuse of the furlough scheme, with many more expected to follow. HMRC has made it clear that it will be cracking down hard on any misuse of the scheme, so businesses can expect a surge in investigations.
 
Over 1m businesses have used the furlough scheme to place more than 9m workers on furlough since it was introduced in March. Over £27bn has been paid out through the scheme so far.  
 
However, there is growing evidence that this scheme has been misused. Over 3,000 people have already reported misuse of the scheme to the government’s specialist whistle-blower hotline. HMRC has estimated that £4.4bn has been fraudulently claimed.
 
As HMRC turns its focus to reviewing furlough claims, it is inevitable that some innocent businesses could get caught up in investigations. This would be very stressful for businesses and could lead to additional costs and major disruption to daily operations.
 
So, how does HMRC identify businesses that have misused the scheme? HMRC is known to be checking the social media accounts of employees to see whether there have been any posts about going into work despite being on furlough.
 
HMRC will also be checking businesses’ websites to assess activity. For example, if a business says it has furloughed most of its staff but is still offering a full range of goods or services online, then this could raise red flags about how furlough money is being used. 
 
Businesses that have used the scheme and subsequently made employees redundant are also likely to be investigated. This may raise suspicions that furlough money was claimed in order to provide a source of cash for the business rather than being used for its purpose – to retain employees.
 
HMRC investigations and raids can be very stressful for businesses and their employees. The first furlough arrest gives an indication as to what businesses can expect.
 
On July 8, 100 HMRC officers raided 11 different locations in the UK and made eight arrests. As part of these raids, computers and other digital devices were seized, and funds held in a bank account relating to the business were frozen.
 
HMRC will be looking to send a strong deterrent message to other businesses who may have misused the scheme. There is a very strong public interest in the furlough scheme being used correctly and businesses can expect HMRC to spare no resources in this area.
 
New legislation being fast tracked through Parliament (The Finance Bill) will give businesses that have fraudulently used the furlough scheme a 90-day window in which to pay back HMRC and, in return, receive no penalties or sanctions.
 
Businesses that do not come forward will be subject to the full range of HMRC’s criminal powers and if found out, could face penalties of up to 100% of the amount claimed.
 
It would be worth any business reviewing their furlough scheme claims and their actions. For example, head office may be unaware that local managers have been asking furlough employees to work. Better to be safe then to face investigation. 
 
PfP are specialists in this area and you can protect your clients against the cost of most tax investigations by offering a Tax Investigation Service. To find out how we can help, contact info@pfp.uk.com.