We have covered many times the need to be aware of the impact of a range of fraudulent scams on businesses. Clever schemes to trick you out of your money.
But we are now hearing of more examples of businesses themselves committing fraud. They may call it something else: “taking advantage of the opportunity”, “Beating the system”, “Getting one over on HMRC”. But when examined in the cold light of day, it’s fraud.
Newspapers have published examples of Furlough claims when people were asked to actually carry on doing some work, as well as some claims with numbers that were simply made up or for fictitious employees. Banks have told us that the Bounce Back Loans scheme was abused, either because the business didn’t meet the criteria, or they took out multiple loans from multiple lenders or for multiple companies in the same group.
Let’s be clear. We are not making a moral judgement here. There was huge uncertainty in the early stages of lockdown, and many business owners were scrambling for all the support they could get. The rules were vague at the start, and mistakes will have been made. Our concern right now is the risk and consequences of discovery.
A business was referred to us for advice, having seen their main business bank account frozen as a result of a £50k Bounce back loan taken out on a dormant company owned by the same shareholders (BBL’s were a maximum of 25% of turnover). This was identified by the bank, following an internal review of loans approaching their first anniversary while assessing options for repayment etc. You might think that the solution is as simple as paying back the BBL, but it isn’t.
The bank simply froze all of their accounts, including those for their main business. No ability to put in or take out any money, and all standing orders and direct debits are not being paid out. The bank in question (but they will all be similar) have an investigation process that will take up to 10 weeks. This business and more like it, may find that this kind of banking disruption does more damage than the pandemic and may well force closure.
Furthermore, we would have great difficulty helping them, as money laundering rules would prevent us from even taking them on as a client.
HMRC are reviewing furlough claims, and according to reports, are investigating 27,000 seemingly ‘high risk’ claims.
Within our own clients, there will almost certainly be some with genuine errors or mistakes, and if picked up by HMRC they will probably see no more than a request for repayment and interest on the amounts over claimed. However, for any businesses out there where there are indications of deliberate fraud, HMRC have said that they will consider all options, including criminal prosecution which could carry a sentence of 10 years in prison.
There were of course other support packages in place for the Self-employed, and rates reductions, the ‘eat out to help out scheme’, reduced VAT for tourism etc. It is our view that all these issues will come under review at some stage, and that fraudulent claims will be harshly dealt with.
There are two important issues here…
- There is a likelihood of HMRC review at some point over the next few years, and the government has allocated further resources to enable them to recover as much money as they can. There is a clear risk of detection, and a claim for repayment, interest and perhaps criminal prosecutions and a custodial sentence for deliberate abuse.
- There may be a commercial impact of being caught out, that could destroy your business. Whether reputational damage by being named and shamed by HMRC (As they did for minimum wage regulations breaches), or by the inability to trade while a bank undertakes an internal review that takes months rather than days.
So whether innocent mistakes or wilful fraud, you need to know it is likely to be detected.
Over 8,000 employees have already complained to HMRC, about being put on furlough but asked to work, or being involved in the process (payroll clerk?) but uncomfortable with the situation. Will your Bank reassess your BBL or CBILS loans, or might a routine HMRC enquiry now include these issues. If you have concerns, ask your Accountant for help…
- If you deliberately broke the rules, take advice from your accountant or lawyer on an appropriate course of action, which would certainly include repayment of any amounts incorrectly claimed. They can advise on how to approach HMRC.
If you cannot repay the amounts due, you should carefully consider whether you carry on, or whether you seek insolvency advice on how the business can be closed in a controlled way.
- If you are aware of mistakes, but that these were genuine errors discovered later, then you should prepare a detailed calculation of the errors, and (via your accountant or lawyer) approach HMRC to explain the errors and agree the settlement of any amounts due. If you are unable to make the payment in full, you should still own up now and then agree a payment plan to clear the full debt.
- If you are just not sure, but have some concerns, why not have a review of all your support packages and find out if you are squeaky clean or not.
All of these support packages have been a lifeline for many businesses, without them many would have failed and unemployment would be much higher than it is now. They were brought in at short notice and some rules evolved along the way, so mistakes are inevitable. But the reality is that all of these claims are likely to come under scrutiny at some point in the future, and the consequences of abuse may see businesses closed and the worst offenders may see themselves behind bars as an example to others.
So if you have an issue, perhaps now is the time to come clean. If you don’t get the advice you need from your own accountant, talk to us.
THINK PLAN ACT