Covid-19 Government Schemes | Fraud Investigations

Primarily, fraud investigations into the Covid-19 loans and grant schemes are handled by the National Crime Agency (NCA) or HM Revenue & Customs (HMRC). The National Investigation Service (NATIS) has also played a role with investigations into the abuse of Local Government grants.

The UK Government has established a Taxpayer Protection Taskforce for investigations into Covid-related fraud. The Taskforce comprises of investigators from HMRC and the NCA, to investigate and pursue those who have allegedly abused the schemes.

Where an agency suspects that a Government scheme has been abused or used fraudulently, it is able to take criminal or civil action against the suspected wrongdoer and obtain an Account Freezing Order to freeze all relevant bank accounts.

Depending on the circumstances of the case, investigators will be considering the following possible offences:

• fraud by false representation
• fraud by abuse of position
• fraud by failure to provide information
• cheating the public revenue
• conspiracy to defraud

Conviction for one of the above can result in a prison sentence. Other sentences include a fine or community order where the nature of the offence is less serious.

There is also a possibility that civil action will be taken. For example, civil recovery orders, civil penalties or civil settlements have previously been issued.

Where a business has become insolvent or gone into liquidation after wrongly claiming Bounce Back Loans, Furlough Scheme funds or other Government grants, it has been known for the Insolvency Service or Liquidator to make a claim against the company officers personally.

In addition, there may be an application for a director disqualification order in addition to the claim for the wrongly paid money from the company director.

The Coronavirus Job Retention Scheme (‘the Furlough Scheme’) gave money to employers who were required to close their businesses during the lockdown restrictions. It enabled them to pay their staff 80% of their normal wages up to a specified limit. This was intended to reduce mass-redundancies in the worst affected sectors, such as hospitality.

Whilst the Furlough Scheme was largely successful in preventing redundancies, it did not impose significant verification on the applications made by businesses due to the lack of time available for planning.

The Government estimated that the value of fraudulently claimed Furlough Scheme money amounts to £7.3bn. The most common fraud allegations made against businesses include:

• claiming furlough money for non-existent or dismissed employees
• claiming furlough money for employees who continued to work during lockdowns
• misrepresenting the number of hours their employees worked to maximise the furlough payment

If one of the investigating agencies suspects furlough fraud, it is likely to pursue criminal charges.

The Bounce Back Loan Scheme was created to lend up to £50,000 to businesses which had been affected by the lockdowns. The loan was for the equivalent of 25% of the business’s most recent annual turnover, up to a maximum loan of £50,000. The loans featured a low interest rate and are widely regarded as having been an effective way for businesses to return to profit-making after the pandemic.

Many businesses which used the loans have been highly successful as a result. However, due to the absence of checks, the Government suspects that there were many businesses which claimed funds either in error or dishonestly. For example, it is alleged that some businesses exaggerated turnover figures in order to secure loans or apply for the loan multiple times with different lenders.

The Taxpayer Protection Taskforce is committed to recovering wrongly paid-out loans and taking action against the individuals responsible. This has included compulsory liquidation of businesses or making personal claims against officers of the company.

The ‘Eat Out to Help Out’ scheme was introduced by the UK Government to encourage people to return to restaurants after lockdown rules had been lifted. The Eat Out to Help Out Scheme allowed restaurants to claim half the price of a meal from the Government, whilst customers would pay the other half. The maximum amount claimable was £10 per customer.

The Eat Out to Help Out scheme was open to fraudulent abuse because the Government largely relied on businesses to report the meals which had been purchased by customers, and in return the Government would pay up to half of the reported cost back to the business.

However, it is alleged that some businesses dishonestly overreported their sales, leading to the Government paying an inflated sum for meals which had never actually been consumed. Other allegations include claims that meals ordered as takeaways had been eaten in the restaurant or that claims for the cost of alcohol were being put through the scheme illegally.

HMRC has taken an interest in pursuing businesses it believes have dishonestly claimed money from the Eat Out to Help Out scheme. Its officers have conducted searches of tills and physically visited restaurants to verify that the business is capable of accommodating the reported number of diners and to check that the sales did in fact take place.

The SEISS operated similarly to the Furlough Scheme, except it applied to those who were self-employed rather than employed. The scheme allowed self-employed individuals to receive one or more of five grants, however, the eligibility requirements for each grant varied.

HMRC have been investigating those who obtained a SEISS grant to ensure they were eligible for it at the time. As each grant’s eligibility requirements were different, many claimants unknowingly claimed a grant for which they were not eligible, despite having been eligible for other grants. Additionally, some claimants did not realise that the grants were taxable and have since faced investigations for failing to declare the funds on Tax Returns.

If you receive a Tax Assessment from HMRC, we can advise you in relation to the appropriate representations to make to HMRC in an effort to bring the investigation to a conclusion.

In order to support businesses which were adapting to the changes caused by the Covid-19 pandemic, the UK Government allowed businesses to defer VAT payments to 31 March 2021 if the scheduled VAT payment fell due between 20 March 2020 - 30 June 2020. This provided businesses with temporary working capital in the absence of a regular source of income.

Those who could not pay the VAT by the deadline were invited to join the VAT Deferral New Payment Scheme which spread repayments over 11 instalments. Those companies which have not been able to repay the deferred VAT, or those which deferred payment with the intention to defraud HMRC, can expect further action and VAT Assessments to be issued against them.

HMRC is able to bring criminal and/or civil proceedings against individuals who have not paid VAT. If you are concerned about an HMRC VAT investigation into you or your business, please get in touch with us.

If any of the issues highlighted above affect you or your business, please get in touch with us.

Our team can provide legal advice and guidance on the appropriate steps to take whether the issue is one of criminal or civil liability. Our expert criminal and civil litigation solicitors are available to help you.