Date22 Sep 2020
CategoryTax, Fraud Investigation, Tax Disputes
During the current Coronavirus pandemic, HMRC have stated that they expected the support schemes launched to be targets for fraud and criminal activity.
Whilst undoubtedly past experience has helped HMRC design the support schemes and focus their compliance work, estimating the likely level of fraud is fraught with difficulty.
Given the extraordinary circumstances of the economic environment, HMRC do not yet have hard evidence or past experience, so instead have looked at the best available comparisons by analysing other grant and benefit schemes such as Tax Credits. Therefore, HMRC have used evidence from the level of fraud in the tax credit scheme to provide their best estimate of fraud in the CJRS scheme. The greatest difficulty is that the people applying for the other grant and benefit scheme are very different to employers applying for CJRS. Therefore, with any forecasting having to be based on evidence from other schemes they could be massively over or worse massively under estimated.
Given this, HMRC are expecting that the level of error and fraud could range from 5-10% in CJRS or between £5-£10bn at the current level of support. This “guesstimate” must be heavily caveated and qualified. As such, what we can expect is compliance activity being focussed on the claims which have been paid but are also throwing up anomalies. HMRC consider that they have already blocked some non-compliance by making it more difficult through system design and acting before payments are made. We anticipate that HMRC will issue many “nudge” letters (the carrot) in the first instance where HMRC think there is an error in the claim. These will request that the employer checks the claim and correct if necessary or to confirm if they are happy with the claim made. If errors are then found, penalties are likely to apply (the stick) which, given the unprecedented support given to the economy are likely to be high to discourage such errors or frauds in the future, should it be necessary to extend or re-introduce the scheme.
Azets are well placed to check any claims made previously and support those who have made errors or fraudulent claims.
“There are serial fraudsters who will always seek to exploit vulnerabilities and there are people who will commit fraud as financial pressure falls upon them. HMRC are well aware of both scenarios and therefore are taking this seriously. However, given the difficulties of identifying who has committed a fraud, or who has made a legitimate error it will inevitably lead to HMRC commencing enquiries and investigations against innocent parties. Therefore, being able to respond in a thorough manner to any such enquiry is important to ensure you are not wrongly accused and waste valuable resource fighting any allegations.
As we investigate fraud and also assists in defending those wrongly accused, we understand the hurdles that HMRC will have to overcome to satisfy themselves that fraud has occurred to impose any punishments. This is certainly an issue that is unlikely to go away quickly given the monies provided by the Government to financially support companies and the duty of HMRC to ensure it was provided appropriately”.