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Furlough fraud: the offences and sanctions
In the Budget 2021, presented to Parliament on 3 March, the Chancellor announced that HMRC will establish a taskforce to investigate those who have fraudulently made use of government schemes set up to protect individuals and businesses against the economic impact of COVID-19 – such as the Coronavirus Job Retention Scheme (CJRS) (widely referred to as the Furlough scheme) and the Self-Employment Income Support Scheme (SEISS). In addition, we were told that the government will raise awareness of enforcement action in order to deter fraud, and will significantly strengthen law enforcement for Bounce Back Loans.
Backed by £100m of government money, the Taxpayer Protection Taskforce will deploy a team of more than 1,250 HM Revenue and Customs officials to investigate individuals and companies who have fraudulently claimed funding under these schemes, potentially leading to prosecution in some cases.
The potential scale of the problem had previously been raised in the House of Commons Public Accounts Committee, where HMRC CEO Jim Harra appeared before MPs in September 2020. He confirmed HMRC’s assumption that between 5% and 10% of claims related to the furlough scheme would be fraudulent. This was equated to “between £2.0 billion to £3.9 billion” in a National Audit Office report published in October 2020. This report also confirmed that for the first SEISS grant, HMRC’s planning assumption was that fraud and error could range from 1-2% - something that HMRC’s Jo Rowland confirmed to MPs in a follow up session in November 2020.
MPs continued to raise concerns and in December 2020 highlighted that HMRC does not know the “actual level of fraud and error in the schemes and will not have a complete estimate until the end of 2021 at the earliest”. In a related inquiry into the Bounce Back Loan scheme, for which UK taxpayers “face covering billions of pounds … with potential losses estimated in the region of £15 billion to £26 billion”, the committee confirmed that “while the Government estimates the majority of this will be credit losses, where the borrower wants to repay the loan but cannot – it lacked the data to assess the levels of fraud within the Scheme…”
See our related blog £26 billion fraud: The other side of the Coronavirus Business Interruption Loan Schemes.
You can read more on Furlough Fraud offences and sanctions here.
Given the significant investment by the government and the sheer scale of the suspected fraud, it is expected that HMRC will be relentless in pursuing those who have taken unfair advantage of the government's financial support, deploying new enforcement powers introduced under the Finance Act 2020 (enacted on 22 July 2020). The creation of a dedicated taskforce comprising more than 1,250 HMRC personnel demonstrates both the scale of the problem and the determination to go after those who have fraudulently benefited. COVID-19 related fraud is likely to take on an increasingly prominent role in law enforcement activities over the coming months and, most likely, years.
It is essential that businesses across all sectors have robust measures in place to prevent, identify and report fraud, and that when fraud is suspected appropriate action is taken. This may involve conducting an internal investigation, preferably handled by external lawyers, and in some cases companies may need to self-report to HMRC. Other important considerations will likely arise, such as employment law obligations concerning employees suspected of carrying out the fraud, statutory duties imposed on directors of the company and reputation management issues. The most important thing a company should do when dealing with suspected fraud is seek specialist legal advice immediately. Ignoring the issues or turning a blind eye not only has serious ramifications for the business but also for its directors, officers, senior managers and owners; ignorance is far from bliss.
For more information on the issues which may arise for businesses and practical guidance on how to deal with them, please see our earlier article. This blog has also been re-published by International Law Office which you can view by clicking here (subscription required).
Following this Taxpayer Protection Taskforce budget announcement, Nicola has been quoted in various sources including: Reuters, Daily Mail Online, This is Money, Yahoo Finance UK, London South East News & MSN Ireland, stating:
This is a serious ramping up of resource and will add important credibility to HMRC’s role as tsar of furlough fraud. Those who think these (discrepancies) will most likely fall under the radar should perhaps think again. There may be civil or criminal consequences.”
For further information on the issues raised in this blog post, please contact a member of our criminal litigation team.
Nicola Finnerty is a Partner in the Criminal Litigation team and is a leading criminal defence expert in both business and general crime. She has experience of fraud, corruption (including the Bribery Act) and cartel matters, financial compliance, money laundering, asset seizure and confiscation cases, through to sexual offence cases, drugs, murder and offensive weapon crimes. Nicola has acted for many high profile individuals who have needed advice on criminal matters. She has also represented corporate clients, financial institutions and professional firms in investigations and proceedings brought by the SFO, CPS, FCA, HMRC and other prosecuting bodies. She is routinely instructed in judicial review and appeal cases.
Will Hayes is a Associate (Barrister) in the Criminal Litigation team and represents individuals and corporate clients in a range of criminal cases. He has represented clients in cases covering the full spectrum of general crime, cases with an international dimension and represents clients defending extradition requests and challenging Interpol Red Notices. Will has a particular interest in legal professional privilege (LPP) and has developed a comprehensive understanding of the law and its practical application.
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