Medium-sized businesses could face a barrage of letters from HM Revenue and Customs as furlough closes at the end of this month and the government looks to recoup a suspected £7bn of fraudulent or erroneous Coronavirus Job Retention Scheme (CJRS) claims.
Business and financial adviser Grant Thornton said that HMRC’s new Taxpayer Protection Taskforce was now up to full strength, following a recruitment drive to hire more than 1,200 investigators since March, and was now likely to move to stricter enforcement of furlough rules.
A survey carried out earlier in the year for Grant Thornton of 605 businesses with annual turnovers of between £50m and £500m found that, of those surveyed who had made use of the scheme, just under a sixth (16%) had not reviewed their initial CJRS claims to check they were correct.
In total, more than one million UK businesses have utilised the CJRS during the pandemic. It has safeguarded about 11.6 million jobs at a cost of just under £70bn, according to recent figures.
However, the government estimates that up to 10% of that may have been claimed incorrectly, with fraud suspected to make up a significant proportion.
Grant Thornton warned that the CJRS legislation indicated that any inaccuracy could be treated as deliberate and concealed. This was in contrast to penalties in most other tax regimes, whereby investigators would usually only judge something as deliberate in the face of compelling evidence.
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Grant Thornton partner and tax disputes expert David Francis, a former tax inspector, said many business owners were likely to receive a Code of Practice 9 (COP9) letter this autumn: “HMRC has been embattled on two fronts: supporting businesses to deal with both Brexit and the pandemic.
“It’s fair to say the department’s put that ahead of enforcement activity due to a lack resource. But that stance is set to change as it comes under pressure to recoup a suspected £7bn fraudulently, or erroneously, claimed under the CJRS.
“Come September, we’re expecting a number of businesses will be opening a letter inviting them to enter a Contractual Disclosure Facility (CDF) under COP9. This lets the recipient know they’re suspected of deliberate fraud and offers them protection from criminal prosecution; on the proviso they come completely clean, disclose any tax errors over the last two decades, and repay the amount owed.”
Grant Thornton said that when a firm accepted a COP9 offer, they would need to provide HMRC with full disclosure, outlining what deliberate offences were carried out, how and why they were committed, and at least an approximate liability.
Crucially, they would have to concede that any fraudulent claim was deliberate, the firm said. An attempt to put it down to a genuine mistake will invalidate the COP9 protection and leave those involved open to criminal prosecution.
Sectors such as retail, leisure and hospitality were expected to be a major focus for HMRC but Francis said individuals running businesses of any size, and in any sector, could receive a COP9 letter.
He said: “There’s a misconception that HMRC isn’t interested in smaller and mid-sized businesses. But we’ve seen instances where CJRS claims for one single employee have been investigated. Businesses may have made honest mistakes during the incredibly challenging trading conditions posed by the pandemic. But HMRC’s view is likely to be that there will have been at least three instances to get things right: the initial claim, replying to the nudge reminder letters it has sent out, and again when completing a corporate tax return.
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“Receiving a COP9 letter can be a stressful event. It’s important to enlist the right professional advice and respond within the 60-day deadline.”
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