Coronavirus Support Payments – Are you compliant?

What is the issue?

There have been a number of recent reports of high profile arrests by HMRC officials where there has been fraud associated with furlough claims and other Coronavirus Support Payments. HMRC have received over 27,000 reports on their COVID Fraud Hotline (0800 587 5030) and will be seeking to investigate those, and other cases, where they suspect claims to be either incorrect or false.

How does this affect you?

The Finance Bill 2020 sets out the rules for compliance and how incorrect/fraudulent claims will be dealt with. Basically, the recovery of liability is brought within the scope of the Taxes Management Act so HMRC have the same inspection and information powers as general tax enquiries and also the power to recover excess payments by assessment. As this requires an understanding of how HMRC work, their information and inspection powers together with experience of negotiating the overall liability then specialist assistance may be required.

The key points to note are:

• Where the directors knew that they were not entitled to the payments (i.e their actions were deliberate) HMRC can give a direction to transfer liability to the directors personally.
• Transfer of liability can take place where a company is in liquidation or where there is “serious risk” of insolvency.
• HMRC can publish names of deliberate defaulters.
• Even if HMRC do not transfer liability any penalty is based on 100% and is mitigated by reference to the disclosure was prompted or unprompted and the underlying behaviour.

Whilst HMRC have already made clear their approach, it is our understanding that furlough payments are an unsecured creditor so even with the new Crown Preference rules HMRC may have difficulty in recovering funds without transfer of liability, resulting in them taking a particularly hard line.

What do you need to do?

If any of the following applies you may need to take professional advice:

1. You may be concerned that you have incorrectly claimed Coronavirus Support Payments and want to review furlough payments in advance of an insolvency to establish if there is a potential liability and/or are grounds for transfer of liability.
2. You may be concerned with the financial health of your business and how any possible COVID related liability may affect your business and ultimately the directors personally.
3. You may be subject of a HMRC audit, or investigations by the liquidator, and assistance is required in establishing/negotiating liability. The underlying rules are complex and there are some highly technical areas which may require specialist advice.
4. Ensure the HMRC claims are justifiable and amounts are legally collectible (i.e. is the quantum correct and have they got the tax administration right?).
5. Appealing against any direction to transfer liability.
6. Where a liability does arise negotiate a settlement on behalf of the former directors to repay sums to the liquidator for distribution to creditors.

If you want to speak to us we can provide expert advice and discuss the options available. Additionally we work with the co-author Richard Alderson of Pannu Tax Ltd who can also provide specialist advice on how to deal with HMRC on any of the matters discussed above.

Copyright: Michael Chamberlain & Co Ltd / Richard Alderson, Pannu Tax Ltd