In January, articles began circulating in the media which stated the Treasury had written off £4.3 billion in COVID payments lost to fraud and error. Whilst this statement was refuted by Chancellor Rishi Sunak, there continues to be discussion on how active HM Revenue and Customs (HMRC) will be in pursuing these erroneous COVID payments.
Types of COVID fraud
HMRC has estimated that £5.8 billion in total was lost to fraud and error across the following support schemes:
- Coronavirus Job Retention Scheme (CJRS) — 8.7% of total claims
- Self-Employment Income Support Scheme — 2.5% of total claims
- Eat Out to Help Out Scheme — 8.5% of total claims
To tackle fraudulent and widespread errors in claims, the Taxpayer Protection Taskforce was introduced in 2021/22 and will be in place until the end of the 2022/23 tax year. The Government has invested over £100 million in this taskforce and has stated it expects to recover £1.5 billion by 2023. These forecasts leave £4.3 billion unaccounted for which is the subject of the recent media articles.
The Taxpayer Protection Taskforce was introduced as part of HMRC’s post-payment enforcement action and is collaboratively working with HMRC’s Fraud Investigation Service to tackle the erroneous claims.
HMRC’s Chief Executive, Jim Harra, has told the Treasury Select Committee “No error or fraud is acceptable, hence why we will not give up on any of it. It is not acceptable for people to make incorrect claims, but it was inevitable.” The comments align to HMRC’s core principle of bearing down on tax fraud to build public trust.
At this meeting on 2 February 2022, Mr Harra confirmed the taskforce had recovered £536 million in 2020/21. In addition, £350 million had been recovered solely in relation to CJRS by prompting businesses to double check the accuracy of their original claims through the issue of nudge letters.
Nudge letters and enquiries — Coronavirus Job Retention Scheme
A nudge letter is a cost-effective mechanism for HMRC to prompt businesses to check their CJRS claims. These letters are generated where HMRC has identified a potential risk using its sophisticated data gathering tools. The first round of letters was circulated in Autumn in 2021 and, given the amount recovered, it is likely these letters will be used again in 2022.
Should a business receive a nudge letter, it is important not to ignore it and to seek specialist support to check the accuracy of the original claims.
We are also seeing an increase in the number of enquiries being opened into suspected overclaims following the filing of the corporation tax returns. Due to the complexity of the CJRS support calculations, combined with the quick guidance rollout, even businesses who were confident in the accuracy of their original claims have been receiving HMRC enquiry letters.
The benefits of reviewing any Coronavirus Job Retention Scheme claims
CJRS remains a risk for those businesses who made claims for support. Businesses are strongly recommended to undertake a review of original CJRS claims to check for accuracy. The benefits of these reviews are:
- If an error is identified, the business can proactively approach HMRC with a disclosure. An unprompted approach to HMRC will reduce penalties
- If no errors are identified, should HMRC subsequently raise an enquiry, the review findings can be used to demonstrate to HMRC that the business had taken ‘reasonable care’. This defence will be critical when HMRC determines potential penalties.
Given the potential reputational damage and penalty exposure, should it be determined the original claims contained errors, these reviews are becoming critically important as part of due diligence processes.
How we can help
Our Employer Solutions and Tax Dispute Resolution experts can review the accuracy of claims for CJRS support and assist should a disclosure be necessary. If a nudge letter is received from HMRC prompting the business to undertake a check, or an enquiry is opened, our team can also help you navigate through this process with HMRC.
For help with your CJRS claims, please get in touch with either:
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This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.