If a prompt is received from HMRC suggesting that a furlough claim may be incorrect, details of where to make a disclosure should be included on the correspondence. Alternatively, HMRC’s Digital Disclosure Service is available for unprompted disclosures. For more serious cases, where there is an admission of deliberate behaviour, an application can be made for HMRC’s Contractual Disclosure Facility (CDF) which offers immunity from prosecution providing the taxpayer cooperates throughout the process and makes full disclosure.
If there is any admission of deliberate behaviour or tax fraud, the CDF should be considered, and I would always recommend involving a tax dispute resolution expert in those circumstances.
It may be hard to look at the facts of a case and say that it is tax fraud because for it to be fraud there needs to be an element of dishonesty. The speed at which furlough was implemented, the frequent rule changes and its complexity will make it hard for HMRC to demonstrate that the taxpayer was dishonest. If your client admits intentionally over claiming furlough monies or asking staff to continue working knowing that it breached the rules, it is likely that the CDF is the best route.
There is a common misconception that tax fraud is not a criminal offence because an overwhelming majority of tax fraud cases are dealt with on a civil basis by HMRC. To be investigated on a civil basis is a decision of HMRC not an automatic right. Therefore, as one cannot predict which cases HMRC will decide to prosecute, fraud investigations must be handled carefully.
Ultimately, as advisers, we need to gather the facts and all relevant information then carefully explain the disclosure routes available to our clients and assist them with making an informed decision.
HMRC has invested £100m in a taxpayer protection taskforce which is responsible for recovering COVID related support payments that were over claimed by carrying out a risk assessment and then, in some cases, opening an enquiry to address those risks. The newly formed team sits within HMRC’s Customer Experience, Professionalism and EU/UK Transition team, (CEPET). Our role, as the accountant and/or tax adviser is to satisfy HMRC that the furlough claim was valid and correct.
My advice when responding to a HMRC enquiry letter is to remain professional and politely educate the HMRC officer about your client’s business sector and how their business was affected by the pandemic. If HMRC has requested detailed information for every employee included in the furlough claim and/or supporting documentation then, having addressed any perceived risks of that industry, can you persuade HMRC that a sample check of the claim is proportionate?
Generally, HMRC can investigate going back four years. This increases to six years, where HMRC suspects carelessness and 20 years where HMRC suspects deliberate behaviour. Although furlough claims can be complicated, one thing that simplifies the issue is that claims only go back to 2020 so the relevant time period when reviewing claims is limited. However, if HMRC suspect deliberate behaviour they will likely extend their enquiries into other areas, going back prior to 2020. Consideration of behaviour remains extremely important as it also affects:
If you or your client would like a no obligation, confidential discussion about making a disclosure to HMRC or would like to discuss a CJRS or COP9 enquiry letter, please do not hesitate to contact Sarah Scala, firstname.lastname@example.org or directly on 07940 463824.
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