June 2021 Tax Investigation Round Up

June's round up of the latest tax investigation news and cases:

• Crackdown on promoters of NIC avoidance schemes
• 91,000 fraud tip-offs received in the first few months of the pandemic
• Pair arrested on suspicion of £3.4m furlough fraud

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Crackdown on promoters of NIC avoidance schemes

The government has published new ways to target the promoters of tax avoidance schemes that are based on the abuse of NICs (National Insurance Contributions.) Under the new rules, accountants, lawyers, financial advisors, tax firms and all other financial institutions will be targeted by the new extension of power by the HMRC.

This proposal is to make sure that action can be taken immediately and decisively when promoters fail to provide the correct information on their National Insurance schemes under the current disclosure of tax avoidance scheme framework (DOTAS).

The Finance Bill 2021 will newly introduce a two-stage process which will be submitted alongside the existing DOTAS regime. The first stage would create an initial notice that can be issued to a wider range of intermediaries and promoters in the avoidance supply chain that is at the moment possible.

This notice is intended to gather information from the recipient to HMRC which will determine whether the avoidance scheme is being promoted under the DOTAS regime. If however the information is forthcoming HMRC will be able to use the information as normal.

The second stage takes place if the information is not forthcoming or insufficient in the first stage. This would enable HMRC to issue a DOTAS Scheme Reference Number (SRN). This will help the HMRC to act faster where avoidance schemes are being promoted.

The government disclosed at Budget 2020 that it planned to legislate at Finance Bill 2021 to take further action in this area. This would see that action could be taken against avoidance schemes and promoters.    

Promoters are trying to restructure their businesses to find other loop holes to try and carry on with their businesses. They are simply failing to provide evidence and denying that they fall within this bracket.

These delays extend HMRC’s investigations and in the meantime promoters continue to sell people avoidance schemes that in many cases fail.

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91,000 fraud tip offs received in first few months of pandemic

During the first nine months of the Covid -19 pandemic, HMRC’s fraud hotline received over 91,000 calls. The majority of the concerns, according to the tax insurance group PIP, say that they  were over furlough fraud. These allegations were between April and December 2020, averaging around 10,000 calls per month.

It is suggested that other calls were to do with allegations over the ‘Eat Out to Help Out’ scheme. Accusations were over restaurant owners putting fake orders through the books to claim larger amounts from the government's scheme.

PIP claims that many of the fraud allegations could be false, leaving businesses under investigation for long periods. Usually claims are from warring neighbours or former partners.

Kevin Igoe, managing director at PfP claims: ‘With so many fraud allegations being made to HMRC during the Covid-19 crisis, there is no doubt that many of them will end up being false. Whilst those cheating the tax system should be held to account, heightened tax investigations are the last thing that decent, law-abiding businesses need at the moment.

‘Months of lockdown restrictions have already put many businesses under huge pressure. HMRC investigations can be costly, time-consuming and can cause enormous stress for the owner-managers and directors involved.

‘HMRC will be looking to up the pressure on businesses in order to recoup as much tax revenue as possible in the coming months. It is therefore now more important than ever that businesses have cover in place to ensure they get the advice and support they need if an investigation is launched.’

With this increased pressure HMRC are finding themselves under to recoup funds, further ramp ups in tax investigations and tougher penalties being given out are expected over the coming months.

However, an HMRC spokesperson declared: ‘Since the start of the pandemic, HMRC has worked consistently to support businesses during what we know has been a uniquely challenging time for them, while continuing to tackle tax fraud and avoidance to maintain a level playing field. The suggestion that we are going to arbitrarily step-up investigations and pile unnecessary pressure on businesses as they seek to recover from the impact of coronavirus is completely false.’

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Pair arrested on suspicion of £3.4m furlough fraud

HMRC have been heavily  cracking down on furlough fraud and have arrested a man and woman from the Bradford area in relation to this offence.

On 28th April 2021 a 35 year old male and 36 year old female were arrested after a search warrant took place executed by HMRC’s Taxpayer Protection Taskforce. The pair were arrested on suspicion of money laundering and VAT evasion.

The duo were also arrested in relation to a multi million pound tax fraud and have now been released under investigation. Their bank accounts have been frozen by the HMRC that are said to be holding more than £6m.

Janet Alexander, taxpayer protection taskforce director, HMRC, stated: ‘The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. The vast majority of employers will have used the CJRS responsibly, but we will not hesitate to act on reports of abuse of the scheme or any HMRC administered Covid-19 support packages.

‘This is taxpayers’ money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding. As usual, we have built steps into CJRS to prevent mistakes and fraud happening in the first place, but anyone who is concerned that their employer might be abusing the scheme should report it to HMRC online or call 0800 788 887.’

Over £61bn has been claimed through the Job Retention Scheme, this helped to support 1.3m employees and 11.5m furloughed jobs. The Coronavirus Job Retention Scheme has four properties which should be followed to avoid false claims;

- employees continue to have to be on a payroll by a particular date, to prevent the use of fake employees;
- claims are only accepted from employers known – and authenticated – by HMRC;
- all claims are assessed by a specialist team within a 72-hour window; and
- proportionate and reasonable interventions with customers after money has been paid.

There is guidance on the government website on how to pay back any grants that have been overclaimed or to offer advice. You can also make voluntary repayment for any grants that have not been needed.