Leading Yorkshire-based tax dispute specialist Independent Tax is warning that new powers enabling HMRC to pursue employers and company directors who have misused the Government’s Covid-19 furlough support packages will further add to the pressure faced by business as a result of the pandemic.

This week, Chancellor of the Exchequer Rishi Sunak amended the Finance Bill to give HMRC the power to pursue those who abuse the Coronavirus Job Retention Scheme (CJRS) and the Self-Employed Income Support Scheme (SEISS). The new powers will allow HMRC to charge 100 per cent tax on payments that have been made to employees since the schemes were introduced in March of this year. HMRC will also be able to pursue small companies that received a government grant of up to £25,000. Action will be taken if they believe that the business did not require a loan or ceased trading shortly after receiving the funds.

The Finance Bill is expected to receive Royal Assent in mid-July, at which point it will become law. From that date, any business or individual that has received payments from CJRS or SEISS will have just 30 days to inform HMRC that they applied by mistake and pay the amounts back without penalty.

Gary Brothers, Managing Partner of Independent Tax, explained: “HMRC believe that fraud and mischief exists in various areas, including businesses that have required staff to continue working despite receiving the 80 per cent furlough payments from the government; businesses that have not passed the full furlough amount on to their employees; self-employed people ‘moonlighting’ on other work, despite having taken support; and self-employed people falsely amending their tax returns to maximise their SEISS payments.”

In May, Independent Tax was made aware that HMRC was already conducting more than 1,000 investigations into potential furlough ‘abuse’ as a result of information received from whistleblowers through its fraud hotline. Less than one month on, HMRC has advised that the number of investigations is now closer to 2,000.

Gary continued: “In addition to relying on whistle-blowers, HMRC is at pains to point out that they have access to an incomprehensible wealth of information and cutting-edge forensic review technology, which allows their Risk & Intelligence Teams to trawl through millions of pieces of data in seconds to find furlough ‘abuse’, without the need for whistle-blower information.

“Because these new powers are being introduced at a new 100 per cent rated tax band, the penalties provided for in the Taxes Acts will apply, which means that, on top of an employer having to repay all the money to HMRC, they could also be issued with penalties of up to 100 per cent, as well as interest! In the worst cases, HMRC has said that it will seek to criminally prosecute people.”

He advised: “What’s alarming is that the burden to prove otherwise and discharge the enquiry sits with the those being investigated. As such, we strongly recommend that detailed records of any claims under CJRS or SEISS are kept for the statutory period of six years.

“If you believe that an application for either CJRS or SEISS payments was made mistakenly and that such an admission needs to be made to HMRC, expert advice should be sought. At this point in time, we are uncertain how HMRC will approach these disclosures but, based on our collective experience of working for both HMRC and private practice, the view tends to be that if a taxpayer is treating their affairs incorrectly there’s a strong chance that they’re doing so in other areas too. Expert advice could help to minimise the risk of a voluntary admission of a mistake spreading exponentially into other areas of your tax affairs.”