Pandemic fraud warning!

Coronavirus, Finance, HMRC, Limited Company, Payroll,

We’ve talked in previous posts about the likelihood of increased attention from HMRC around any pandemic related support claims. Reports are now coming in from several different directions that Pandemic fraud enquiries are now taking place, and many fraudulent claims are being identified.

What’s happening?

To date, 268 UK company directors have been banned from running companies by the Insolvency Service for Pandemic fraud. Some of these directors committed furlough fraud, while others defrauded the Bounce Back Loan scheme. For example:

  • The retailer from Walsall whose company turned over just £1,300, but who applied for a Bounce Back loan of £45,000. The company has now entered a Creditor Voluntary Liquidation, but the Director has received a nine year ban, given the illegally obtained funds were deemed to have been used for the Director’s personal gain and not for the business.
  • The Rotherham based Director who overstated turnover of four companies and took over £200,000 in Bounce Back Loans. Funds were used to repay a personal loan, further breaching the conditions of the loan scheme, which limited use of borrowings to legitimate business expenditure. Dissolution of all four companies were blocked once the loans were identified, and the Director has been banned from ‘the promotion, formation or management of a company’ for 11 years.
  • A business owner in Solihull was arrested over allegations that he had fraudulently claimed £495,000 through the Coronavirus Job Retention (Furlough) scheme. Computers were seized and business bank accounts frozen while HMRC investigate.
  • Two clients have recently been asked to substantiate claims made under the furlough scheme.

What can you do?

There are two primary areas of Pandemic fraud to consider, and our recommendations vary slightly depending whether we’re looking at questions around Furlough claims, or Bounce Back Loans.

Furlough Scheme Questions

Given that the Government paid out more than £70 billion through the Furlough scheme, enquiries and checks were always going to happen! 

If it’s found that a business has overclaimed under the Furlough scheme, a penalty of up to 100% of the original claim amount can be charged. 

This is in addition to the claw back of the original amount paid.

What’s important is that you ensure you can prove that any errors that may have been made in your claims were exactly that, errors, and not attempted fraud.

As we’ve mentioned before:

  • Make sure that you retain all of your records for any claim.
  • Be sure that you understand the claims that were submitted on your behalf if you use a payroll agency, and that you’re happy that those submissions were entirely accurate.

If you’re a client of ours, we’ve received confirmation recently from our Fee Protection Scheme Supplier that we can handle any Furlough Scheme enquiry on your behalf, without you incurring any additional fees for our time.

Our advice therefore is that clients refer HMRC’s enquiries around Furlough Scheme claims to us, and we will handle them on your behalf, liaising with any payroll bureau along the way. (Please bear in mind that the Fee Protection Scheme will not cover any additional charges incurred from your payroll processor.)

If you’re concerned at any point around claims you have made, or questions asked by HMRC, please get in touch with us. We can help you gain clarity on what you claimed and help you move forward, minimising any repercussions from HMRC.

HMRC have stated that they’re looking for intentional Pandemic fraud, and will be understanding if incorrect claims were made in good faith during such difficult times. This is why we recommend keeping your clear records to substantiate claims made.

Bounce Back Loans

The main concern here is whether you were entitled to claim the level of Bounce Back Loan that you did. The scheme allowed self certification of turnover within a qualifying period, and, as can be seen from the examples above, many Directors intentionally over stated this figure.

Many Directors who intentionally overstated turnover have now attempted to avoid any repercussions by closing the company, often without using an Insolvency Practitioner.

This won’t evade the issue.

The striking off process is simply delayed, the Directors are challenged, and banned, or made subject to legal proceedings when the unpaid loan is eventually identified. The terms of the Bounce Back loan scheme state that there is no personal guarantee, unless fraud is found, and over stating turnover cannot be explained in any other way than fraud. Thus Directors remain personally liable for any unpaid Bounce Back loans, even after the company is dissolved.

  • If you have over stated your turnover and obtained a higher Bounce Back loan than you were entitled to, and are struggling to make the repayments, an Insolvency Practitioner will help you consider next steps. A Company Voluntary Liquidation, or application for the company to be struck off may be most suitable, but you will need to declare the amount of the loan. The Insolvency Practitioner will advise you how best to proceed, and will help you as far as they are able to do so.
  • Insolvency Practitioners are dealing with many, many businesses in the same position, and those that we work with are happy to provide practical advice, often without charge. Please get in touch if you’d like an introduction.
  • If you attempt to close the company without following the correct procedure, legal action against you personally is highly likely, as is disqualification from acting as a Director for a lengthy period of time.
  • If the company IS somehow struck off, and the loan subsequently identified, as a Director during the period concerned you will remain personally liable for the outstanding borrowings.

There’s no way to disguise the risks around the ongoing and increasing enquiries into the various Pandemic Support schemes, and we make no apology for the seriousness of the tone of this post.

If you’re worried about any aspect of the support you claimed, please get in touch. As you’ll gather from the information above, we can either help directly or put you in touch with other people who can do so.

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