Under Investigation: HMRC to probe businesses into use of COVID schemes

July 13, 2021

3 min read

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What's going on here?

Her Majesty’s Revenue and Customs (HMRC) has opened up 13,000 investigations into the use of the government’s COVID schemes to highlight incidents of fraud or breaches of other rules.

What does this mean?

The investigations set to take place will look at schemes such as furlough, the Self-Employment Income Support Scheme and the Eat Out to Help Out meal subsidy measure. These investigations set to be carried out by HMRC are set to recover funds lost to fraud, tax avoidance and non-compliance with other rules. Around 1m businesses in the UK have taken advantage of the furlough scheme introduced by the government throughout the pandemic, which has resulted in ÂŁ64bn of wages being supported. HMRC expects to recover ÂŁ1bn in fraudulent or mistakenly claimed furlough over the next few years which suggests these investigations are just the beginning of extensive investigations. This is further supported by the fact that ÂŁ100m will be invested in the task force responsible for investigating breaches of COVID schemes. So far, HMRC has found that some businesses have recorded higher sales than pre-pandemic times, even one business has claimed maximum furlough payments despite diversifying its business into a takeaway service during lockdowns and taking advantage of Eat Out to Help Out.

What's the big picture effect?

Information about the investigations was acquired by law firm BLM by making a Freedom of Information request, and it was also confirmed that the “number of investigations could rise sharply in the coming years”. The number of investigations into furlough seems to be the highest with 7384 set to be carried out. It could well be the scheme that generates the most investigations by HMRC as a majority of businesses have taken advantage of the scheme during the pandemic. HMRC have stated that they are prepared to take “tough action to tackle fraudulent behaviour”. This is also evident by the fact that five individuals have been arrested in relation to the furlough scheme and three in relation to Eat Out to Help Out.

This is no doubt just the beginning for HMRC as the bigger picture comes into focus, which includes more investigations into fraudulent behaviour and potentially more arrests for rule breaches. The view can be taken that HMRC are now on a witch hunt for rule-breakers and the investment into the task force provides a clear intention from the tax body and the government’s stance on fraudulent behaviour. It can also be said that despite the growing concerns of investigations into businesses, this is the right outcome because there are businesses that have abused these systems and profited from doing so. It is in the best interests of HMRC and the government to investigate because the recoverable funds can contribute to public services. It is also worth noting that this could potentially increase work for law firms, particularly in areas such as Employment.

Recoverable funds from rule-breakers could be put towards the NHS, a public service that has kept the United Kingdom safe throughout the pandemic. Other services which could benefit from these funds include education and the welfare system, all services which have suffered as a consequence of the pandemic. Investigations and arrests will follow in bigger numbers as we steer beyond the pandemic, however, will the funds recovered from the actions of HMRC be put to correct use?

Report written by Harry Grice

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