HMRC and Covid-19 Fraud
As the pandemic spread and the number of Covid-19 hospital admissions rose dramatically, businesses were subjected to considerable change, with many sectors shut down completely or operating at a reduced capacity for extended periods of time. This meant that many businesses were forced to use the Government’s furlough scheme to ensure that their workforce could continue to take a wage whilst taking enforced leave from work.
Around £400bn was spent on supporting people through the height of the pandemic. Whilst most businesses sought help legitimately, the availability of Covid-19 benefits gave rise to widespread fraud. With an estimated £6bn gained fraudulently, in March last year, HMRC created a dedicated taskforce to conduct investigations into fraud related to bounce back loans and other government support.
Despite launching the Taxpayer Protection Taskforce with a budget of £100m, HMRC were criticised for their initial inaction, with plans to write-off as much as £4bn owed and investigations to cease by April 2023. Following this criticism and taxpayer pressure, HM Revenue and Customs has now made a change of plans and continues to investigate the most serious cases of benefit fraud, with focus then expected to turn to cases of fraud where errors were made and not corrected. As a result, directors of companies who received Covid-19 support should be aware of the potential liabilities they could face.
The end of the Moratorium on Winding Up Petitions
To help businesses cope with the financial pressures of Covid-19, restrictions were placed on creditors’ actions, including a temporary moratorium on winding up petitions (Schedule 10 of the Corporate Insolvency and Governance Act 2020). Needless to say, the CIGA considerably hindered HMRC’s ability to collect debts, unless it could be proved that Covid-19 had not played a part in the debtor companies inability to pay.
Restrictions on winding up petitions were first related in October of 2021, however, with restrictions ending completely in April of this year, HMRC has been responsible for a large percentage of all winding up petitions. In April, around a fifth of winding petitions were filed by HMRC, whilst this figure reached almost half of all winding up petitions issued in June 2022.
What is a winding up petition?
A winding up petition is a legal action that can be taken by creditors (including HMRC) against a debtor that owes them £750 or more. There are a number of different ways that a company could deal with the threat of a winding up petition, but the most important is to seek the advice of a licensed insolvency practitioner as early as possible to ascertain the best course of action, be this disrupting the petition, agreeing to repay money owed, a Company Voluntary Arrangement (CVA), Administration, or the last resort of Creditors Voluntary Liquidation (CVL).
If you are facing investigation from HMRC around Covid-19 benefit related fraud, or are facing a winding up petition following the end of restrictions on winding up petitions, contact BEACON to arrange a consultation. We are here to help you find the most beneficial options for your business.
Call 02380 651 441.