• Gary Smith
• April 29, 2022

Covid support fraud: could your business be facing payback?

It has become clear that billions of pounds paid out under the government’s various Covid support schemes were claimed fraudulently or in error. 

It’s going to be impossible for the Treasury to recover every penny wrongfully paid. In fact, HMRC’s chief executive recently admitted to MPs that he expects just £1 of every £4 of erroneously-paid cash to be returned. 

Nonetheless, the taxman is now firmly in recoup mode. HMRC has signified its intent to aggressively investigate instances of wrongful payment, and to apply penalties where appropriate.

Through misunderstandings, miscalculations or inaccurate predictions of how trading conditions would pan out, many businesses are thought to have received more than they were entitled to. Here’s a close look at the issue, and at the steps businesses can take to pre-empt HMRC investigations and minimise penalties. 

How big is the overpayment problem? 

The government’s flagship support measures – i.e. furlough (Coronavirus Job Retention Scheme), the Bounce Back Loan Scheme and the Self Employed Income Support Scheme appeared very quickly after the pandemic first hit. 

These schemes relied heavily on self assessment: i.e. businesses checking whether they were eligible for support based on their own figures and interpretation of the rules. There were very few detailed checks carried out by HMRC at the time. 

Figures showing the extent of erroneous payment have been steadily emerging… 

• Public Accounts Committee data from February 2022 indicates that 8.7% of funds distributed under the furlough scheme – equivalent to £5.3bn – was lost to fraud and error. 
• According to the National Audit Office, the best estimate for the amount paid in fraudulent loans under the Bounce Back scheme was £4.9bn from a total of £47bn borrowed. 
• For all Covid responses implemented by HMRC, the Department for Work and Pensions and the Department for Business, Energy and Industrial Strategy, the overall loss from fraud or error is thought to be at least £15bn. 

Is HMRC going to just write off these losses? 

In a word, no. 

In February, HMRC indicated that it realistically expects to recover about 25% of fraudulent and erroneous payments. Parliament’s Public Accounts Committee said that this “risks rewarding the unscrupulous and sending a message that HMRC is soft on fraud”. 

However, HMRC was also quick to confirm that “nothing has been written off”. Back in January, it announced a new Taxpayer Protection Taskforce, consisting of 1,265 HMRC employees and backed by £100m of government funding. This taskforce is charged specifically with the job of Covid-related recoupment. 

In January, HMRC said that £500m of wrongly claimed support had already been recovered by the tax authority, and a further £350m had been returned without HMRC intervention. 

If businesses realise they have been overpaid, sitting it out and hoping for the best is a risky option. Voluntarily disclosing the wrongful payment to HMRC may mean a significantly reduced penalty. 

Wrongful furlough payments 

Examples include claiming furlough payments for employees who continued to work or who returned to work earlier than expected, or inaccurate payments for employees who were contracted for fewer hours than claimed. 

The rules included a grace period, whereby businesses had 90 days following receipt of payments to notify HMRC of errors or a change in circumstances. 

HMRC has powers to impose a penalty up to the equivalent of double the amount that was wrongly paid. Prosecution for fraud is also a possibility. A special word of warning if you have some disgruntled, recently laid-off staff out there: a fair few furlough investigations have been instigated by tip-offs from current/former employees.

In deciding whether and what level of penalty to apply, voluntary disclosure is usually a key mitigating factor; especially where the overpayment was a result of a genuine error rather than a deliberate attempt to deceive. If you notice there has been a wrongful payment, it is usually better to proactively notify HMRC, rather than waiting to be subject of an enquiry. 

Wrongful Bounce Back Loan payments 

The Bounce Back Loan Scheme enabled small and medium-sized businesses to borrow between £2,500 and up to 25% of turnover, up to a maximum of £50,000. Repayment terms and interest rates were both very favourable. 

The National Crime Agency is putting a lot of resources into investigating ‘hard’ fraud cases linked to the scheme: for instance, organised crime gangs impersonating legitimate businesses, and the use of ‘money mules’ who took out loans and then immediately filed for bankruptcy. 

However, so-called ‘soft’ fraud cases are also on the radar of the tax authority: for instance, borrowers who overstated turnover in order to secure more finance and favourable rates.

Business owners who believe they may be accused of Bounce Back Loan fraud – for instance through inadvertently failing to disclose material information – should seek immediate legal advice. 

Wrongful Self Employed Income Support claims 

HMRC is currently investigating cases where partners and sole traders received a grant but were not eligible or were overpaid. Examples include making a mistake in reporting your turnover which led to you receiving a higher grant than you should have, or, for instance, failing to make an honest and reasonable assessment of whether your business would experience a significant reduction in profits. 

Claimants who are found to have erroneously received an SEISS overpayment could face a penalty of up to 100% of the overpaid grant. 

Getting help 

If you believe you may have been overpaid under any of the Coronavirus support schemes, professional help can put you on the front foot – and certainly helps bring peace of mind! 

For a full and frank discussion, contact our experts today.