Ian McMonagle: Severe crackdown on fraudulent furlough scheme claims and Bounce Back Loans set to begin

Ian McMonagle: Severe crackdown on fraudulent furlough scheme claims and Bounce Back Loans set to begin

Ian McMonagle

Ian McMonagle, taxation director at business advisory firm Russell & Russell, highlights HMRC’s plan to track down those who have fraudulently claimed money during the pandemic.

Chancellor Rishi Sunak’s largesse in support of UK businesses throughout the Covid-19 pandemic has led to widespread fraud. And the signs are that HMRC is preparing an all-out campaign to identify and penalise wrongdoers.

Already, from press briefings emerging from a variety of official sources, it is clear the Government strongly believes there has been a substantial amount of deliberate fraudulent claims made under both the Furlough Scheme and the Government-backed Bounce Back Loan Scheme.

HMRC is currently working on the assumption that up to 10 per cent of the amount claimed in furlough grants is fraudulent. This view appears to be based upon the first tranche of furlough enquiries which has shown that almost 10 per cent of “furloughed” individuals were working while their employers claimed furlough grants.

And while HMRC’s usual language tends, generally, to give taxpayer the benefit of the doubt for genuine human error, the rhetoric being used in this case refers to widespread, deliberate, fraud, to exploit schemes that were too open to abuse.

Gareth Davies, Comptroller and Auditor General of the National Audit Office, said of the furlough scheme: “The scheme is vulnerable to employers inflating the number of staff and number of claims”. He also pointed out that many will have claimed money yet required staff to work.

He went on to say that, as part of the compliance process, HMRC has contacted around 10,000 employers to question them on their use of furlough schemes and has found that its online whistle blower portal, open to everyone, has been one of the best ways to identify fraud.

Official concerns abound also over deliberate abuse of Bounce Back Loans, with estimates that between 35 and 60 per cent of Bounce Back Loans will not be repaid.

Amongst the biggest concerns is that because the loans were underwritten by the Government, application checking, which in too many cases did not involve a review of credit worthiness, was insufficiently robust.

As a result, lenders did not look as closely at the applications as they might otherwise have done. The Government has said in addition that there has been a high level of identity theft in fraudulent claims made.

Additional funding to address the fraud issue was announced in the recent Budget, and as a result, over 1,600 extra HMRC staff have been hired to investigate and expose wrongdoers.

It may be some months before we see any evidence of these additional resources as HMRC is currently gearing itself up for an initially targeted approach to the worst offenders. Inevitably, criminal prosecutions and jail sentences will follow.

In the meantime, all businesses which participated in the schemes should prepare themselves, this year and next, for a generalised HMRC compliance check on many smaller claims.

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