13,775 whistleblower reports have now been received by HMRC about fraud against the furlough scheme as people report their employers, and ex-employers, City lawyers have told City A.M.
HMRC is now stepping up its enforcement activity with a view to recovery, issuing penalties and pursuing prosecution or directors disqualifications where appropriate.
There were many complex and changeable rules surrounding furlough, so error as well as fraud are known to have been commonplace, explained legal experts from law firm Pinsent Masons.
For example, this could include instances when it considers businesses were claiming furlough but telling, or allowing, employees to keep working.
It could also include instances where a past fraud has been uncovered but the business has not come forward to rectify the position.
Volume of claims
The sheer number of furlough claims at the height of the pandemic – and the need to make the payments immediately – made it very difficult for HMRC to spot fraudulent claims.
However Andrew Sackey, Partner at Pinsent Masons, said HMRC has since added a significant amount of resource to its investigation teams to pursue fraudulent or inaccurate furlough claims.
As part of a process of encouraging whistleblower reports from employees, HMRC has deliberately made information about whether an employer has made a furlough claim available online.
Employees are increasingly using this information to make fraud reports through HMRC’s digital reporting service.
Directors or business owners found guilty of furlough fraud can face significant penalties, including being made personally liable to repay the overclaimed furlough funds and custodial sentences.
Sackey said that any business which suspects it may have claimed furlough incorrectly should undertake a fact-finding investigation to establish what may have transpired.
Should a breach be found, business owners should seek advice on how best to quantify and voluntarily engage with HMRC to repay the funds. This will give the owner a better chance of avoiding the harshest penalties, he explained.
Sackey said: “Whistleblowers have played a major role in helping HMRC catch those who defrauded the furlough scheme or were otherwise not entitled to the benefits claims.”
He added: “Significant numbers of employees who found themselves unwittingly playing a part in a breach of the rules or even fraud will have reported them in response.”
“HMRC is increasingly looking to take strong and public action in respect of those it considers may have taken public money they were not entitled to.”
“This is the kind of fraud that HMRC will, in the most egregious cases, feel should result in criminal prosecution. There is significant public interest in the justice system dealing with those who broke the rules to took advantage of the furlough system at a time of national crisis.”
Fraudster in India
One major case of furlough fraud involved a fraudster in India claiming £27.4m in furlough payments over 14 months.
Despite never having been to the UK, he registered four companies in London and claimed furlough for more than 2,700 non-existent employees. HMRC recovered £26.5m of this through a forfeiture order in October 2021.
An HMRC spokesperson told City A.M. this morning that “we designed anti-fraud measures into the COVID support schemes from the beginning, and we are taking tough action to tackle fraudulent and criminal behaviour.”
He added: “We have blocked tens of millions of pounds of claims being paid out in the first place and we are using the full range of our powers to recover incorrectly paid claims.”
“We currently have a number of criminal investigations ongoing, we have opened over 40,000 civil inquiries, and have already made 35 arrests for suspected help scheme fraud,” the spokesperson concluded.