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Furlough Fraud and the Finance Bill 202017th June 2020 Business Crime
In an earlier article, my colleague Simon Bloch and I explained aspects of furlough fraud. HM Revenues and Customs is now preparing to deal with what is fast becoming a real issue for the exchequer. This will be done through measures currently within the Finance Bill 2020, but the Revenue will give claimants a 30-day window of opportunity to confess inaccuracies. The measure will give HM Revenue & Customs (HMRC) the power to raise Income Tax assessments to recover amounts from the recipient of a SEISS or CJRS payment to which they are not entitled, or where a CJRS payment has not been used to pay furloughed employee costs. HMRC will also be able to charge a penalty in cases of deliberate noncompliance. The penalty will only apply if the person fails to notify HMRC about the situation within 30 days, or 30 days after the Finance Bill receives Royal Assent if it arose before that date. The Legislation provides HMRC with powers to make a company officer jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which was never intended to be used to pay furloughed employee costs in certain circumstances. Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled. These powers apply where HMRC can meet certain tests showing there is a serious risk that the company will be unable pay the Income Tax assessment. HMRC will be able to use its information and inspection powers to check a SEISS or CJRS claim has not been overpaid and that a CJRS payment has been used to pay furloughed employee costs.
If an investigation results in the recovery of payments and a penalty imposed by reference to the measures explained above, a separate criminal investigation can still take place in relevant cases. The earlier article explained some of the more likely offences arising where dishonesty is behind the relevant activity. However, it did not deal with the corporate offence of ‘Failing to Prevent Tax Evasion’, which is more likely to arise where the civil investigation identifies organisational failings. The Criminal Finances Act 2017 introduced the strict liability offence. It does not require criminal intent on the part of the company facing the charge. The prosecution need only prove (i) there has been criminal tax evasion (ii) it was facilitated by a person or entity performing services for or on behalf of the business. The relevant actions need to be more than ‘careless or mistaken’. The offender needs to be aware that they are committing an offence. A business charged with the offence will have a defence if it can prove that it had reasonable measures in place to prevent the facilitation of tax evasion or that it was not reasonable in the circumstances to have those measures in place.
As of 7th June, nearly £20bn has been paid to more than one million employers in furlough claims. Over the same period, an additional £7.5bn has been paid to 2.6 million SEISS claimants (the parallel scheme for the self-employed). Although the investigation process is unlikely to have a macroeconomic impact, the recovery of the benefit, together with the associated penalty and perhaps even a criminal investigation could have devastating consequences for many businesses. There will be a lot of directors and partners who claim ignorance of non-compliant or criminal behaviour within their businesses. However, this will not impress the Revenue because of the pressure on them to recover funds and the particular nature of the powers set out above. It is therefore crucial that mistakes are identified now and directors / partners should make sure the schemes are being properly applied in their business. If problems arise, we can assist in all aspects of the investigation.