First arrest over £495K ‘furlough fraud’

A West Midlands man has been arrested in connection with a suspected £495,000 fraud involving the government’s Coronavirus Job Retention Scheme (CJRS), the first such action over potential furlough fraud

HMRC officers executed a search warrant yesterday) in the Solihull area and arrested the 57-year-old.

Computers and other digital devices were seized, and funds held in a bank account relating to his business have been frozen.

The man was also arrested in relation to a suspected multi-million pound tax fraud and alleged money laundering offences.

A further eight men from across the West Midlands have been arrested as part of a linked investigation, which involved the deployment of more than 100 HMRC officers to 11 locations. Further computers and other digital devices were seized, plus business and personal records.

Richard Las, acting director, Fraud Investigation Service, HMRC, said: ‘The vast majority of employers will have used the CJRS responsibly, but we will not hesitate to act on reports of abuse of the scheme.

‘This is taxpayer’s money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding.

HMRC statistics show more than £27.4bn has been claimed through the CJRS supporting 1.1m employers and 9.4m furloughed jobs.

The tax authority says the scheme has four lines of defence against fraud.  Firstly, employees have to have been on a payroll on or before 19 March, to prevent the use of fake employees.

Secondly, claims are only accepted from employers known and authenticated by HMRC, and are assessed by a specialist team within a 72-hour window.

Finally, HMRC says it conducts ‘proportionate and reasonable’ interventions with taxpayers after money has been paid.

Las said: ‘As usual, we have built steps in to prevent mistakes and fraud happening in the first place, but anyone who is concerned that their employer might be abusing the scheme should report it to HMRC online.’

HMRC said it had received more than 4,400 reports of suspected fraud linked to the scheme up until the end of June, of which over 800 arrived within a month of the start of the furlough scheme.

Jessica Parker, a partner at criminal law firm Corker Binning, said: ‘This highly publicised arrest was decisive and strategic. Through this action HMRC are sending a clear message to those who are tempted to take advantage of the Chancellor’s furlough package.

‘It is likely that this action will be followed by a publicised amnesty for those who may have claimed furlough payments fraudulently and HMRC will expect that today’s arrest will encourage those who otherwise may have “waited it out” to come forwards.

‘Furlough fraud is rumoured to have been conducted on a large scale and HMRC’s enforcement division will be planning a significant programme to counter it.’

Richard Morley, partner in Tax Dispute Resolution at BDO said: ‘This underlines just how serious HMRC is on challenging the misuse of the Covid-19 support schemes, making use of the tip offs it has already received and other information it holds.

‘The Finance Bill which after receiving Royal Assent later this month, will trigger the start of the 90 day period for businesses to notify HMRC that they received furlough scheme payments which they were not entitled to receive or retain. 

‘Given that HMRC has clearly started to actively follow up on tip-off’s and potentially incorrect claims, instead of waiting for the start of the 90 day notification period, businesses and individuals should start reviewing their furlough claims now.”’

HMRC’s online fraud reporting tool

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