COVID-19 Fraud

It has become clear that the UK Government schemes to assist people during the Covid-19 pandemic have been abused by some. The authorities have sent clear messages that fraud will not be tolerated. We look at some of the possible areas of abuse:

Loan Scheme Abuse

Authorities have started investigating alleged fraudsters who are suspected of exploiting the government’s coronavirus emergency loan schemes such as Bounce Back Loan Scheme (BBLS) and Business Interruption Loan Scheme (CBILS). On 23 January 2021, it was reported that the NCA arrested 3 individuals who work for a final institution in relation to an alleged £6m BBLS fraud.  It is believed that the perpetrators have allegedly claimed bounce back loans using false data and documents.

Banks are also now known to be reviewing the purpose of loans submitted on applications. We are aware of banks closing accounts and asking customers to bank elsewhere. It is not known whether the authorities will consider other action such as civil Account Freezing Orders where funds remain in bank accounts connected with fraud. Questions about the checks undertaken by banks when considering applications have been raised albeit the funds were provided in an emergency where self-certification was relied upon.

Although the BBL was limited to £50,000 per business the CBILS can go up to £1m, therefore the fraud figures could be extremely high.

Furlough Fraud

In July 2020 it was reported the first arrests were made relating to the Coronavirus Job Retention Scheme (CJRS) demonstrating the seriousness attached to abuse of this scheme.

Examples of Furlough fraud could be:

• Where employers are claiming furlough payments for employees and still allowing them to work as normal. 
• Where employers are claiming for an employee without their knowledge
• Employers misrepresenting the number of hours worked by staff thus maximising payments.
• Where fictitious or “ghost” employees are created by employers to enable a claim to be made to HMRC.

In November 2020 HMRC had paid out more than £35.4bn through the CJRS to support 1.2 million employers and 9.6 million furloughed employees. It estimated that up to £3.6bn in furlough payments have been claimed in error or fraudulently and HMRC has been looking into 27,000 “high risk” cases where it believed organisations had claimed too much money under the scheme.

The Finance Act 2020 (which came into force on 22 July 2020) gives employers a 90-day window to self-report to HMRC and explain any errors whether deliberate or inadvertent. In addition to the clawbacks, further penalties up to 100% of the potential lost revenue can be imposed if HMRC believes the conduct to be deliberate and concealed.  If the employer has made a voluntary disclosure, then a penalty is still likely and is unlikely to be less than 30%.

Where a company is insolvent or in the process of becoming so, HMRC can pursue the officers of the company through joint and severable liability where a deliberate act can be proved.

Criminal action is clearly also something HMRC will be considering in deliberate cases.  The offence of failing to prevent tax evasion, under the Criminal Finances Act 2017 could be an option for HMRC in more serious cases.

Eat Out to Help Out

In November 2020 arrests for cheating the public revenue and fraud by false representation were made in relation to businesses who abused the Eat Out to Help Out Scheme. In addition, a large takeaway pizza chain is also being investigated for similar offences. The Government paid out on excess of £500m toward this scheme.

Our fraud specialist solicitor Sundeep Soor states: “Any government scheme is open to abuse. There is a risk to employers and organisations who have flouted the law that HMRC could consider criminal investigations and prosecution for any abuse of the Covid-19 schemes. Dishonesty offences such as cheating the public revenue, fraud by false representation or conspiracy to defraud could be considered by the authorities. Any action presents a serious risk for businesses as well as negative publicity.  As well as having to pay back monies further strict financial penalties being imposed are likely as well as imprisonment in the most serious cases. It is imperative that early expert advice is sought, and a strategy put in place.”