HMRC ramps up COVID investigations – will you be next?

During the first 18 months of the COVID-19 pandemic, the government gave businesses unprecedented levels of support. Many wages were almost completely subsidised by the Furlough Scheme. The self-employed claimed grants via SEISS. Pubs and restaurants benefited from the ‘Eat Out to Help Out’ scheme in August 2020. However, these and other schemes, were prone to fraudulent and inaccurate claims. That’s why HMRC is currently ramping up COVID investigations to reclaim money. We explain what’s happening, giving you an insight into whether you’re likely to face one of these investigations.

More Covid investigations than originally forecast

According to the Financial Times, HMRC believes that it paid out £5.8 billion due to fraud or error for the three COVID support schemes mentioned above. In response, the taxman has set up a dedicated taskforce to try and recoup some of this money. Jim Harra, head of HMRC, says the Taxpayer Protection Taskforce has already recovered £800 million.

What is interesting is the speed and scale at which HMRC is opening COVID investigations. Figures obtained by the Guardian show that the taxman has opened 26,500 investigations into the Furlough Scheme alone since the spring. Originally, HMRC had intended to target 30,000 cases over the next three years. These numbers suggest that the taxman intends to open many more investigations than planned – meaning there’s a greater chance your business will be scrutinised.

The Insolvency Service is now banning around 35 directors a month for abuse of the Covid support scheme.

Between April and December 2022 312 company directors were banned from running businesses for Covid support scheme abuse, the average length of director bans being 7.2 years. Directors disqualified in December 2022 received bans of eight years on average.

It’s easy to see why HMRC is clamping down on fraud across the different COVID schemes. One official told the Financial Times that fraud and error account for 4.9% of its core activities, such as tax credits. By comparison, this figure rises to an average of 7.2% across the three COVID support schemes.

How can I protect myself against a COVID investigation?

Even if you have claimed from COVID schemes correctly and without fraud, it doesn’t guarantee that you won’t face investigation. HMRC has the power to investigate any business.

The problem is that HMRC investigations can be extremely disruptive and expensive. Even if your claims are all in order, you need to be able to provide the taxman with documentary evidence on demand. This is time consuming and gets in the way of your business.

That’s why we recommend that our business clients take out our Tax Investigation Service. This protects you for tax investigation accountancy fees of up to £100,000 – meaning an HMRC investigation won’t break the bank.

Judging by the speed at which HMRC is opening enquiries, businesses are much more likely to face tax inquiries than during normal times. So make sure you’re covered!