Surge in HMRC asset seizure orders

HMRC has significantly ramped up its use of powers to seize monies suspected of being obtained unlawfully, in a sign the tax authority will be getting tough on fraudulent applications for coronavirus support schemes

Analysis by law firm RPC shows HMRC issued 166 account freezing orders (AFOs) in 2019/20, up 177% from 60 the previous year.

In addition, the total amount forfeited, and the number of forfeiture applications, increased fourfold from the previous year.

By applying for an AFO, which can be for as little as £1000, HMRC can prevent money being withdrawn from or deposited into accounts linked to suspected criminal activity.

Forfeiture orders (FOs), which are issued by the Magistrates' Court, and forfeiture notices (issued by regulatory bodies, including HMRC) are used to directly seize money that is suspected of having been obtained by unlawful conduct.

RPC points out that prior to these powers coming into effect in January 2018, HMRC along with other regulatory bodies, had few options available to it for seizing money directly from bank accounts without first having to charge the person suspected of wrong doing.

In contrast, these powers allow HMRC to apply to the court to freeze and forfeit bank accounts without having to bring an allegation of criminal wrong doing to trial.

RPC says that it expects AFOs and FOs to be used by HMRC to seize money in accounts of suspected fraudsters relating to the government’s £350bn coronavirus stimulus package. Businesses suspected of abusing the coronavirus job retention scheme could have accounts frozen for up to two years. Adam Craggs, partner and head of tax disputes at RPC, said: ‘HMRC now has extensive powers to seize assets under investigation and it appears to be looking at every opportunity to exercise those powers.

‘Freezing orders are easy to obtain. The authorities only need to show the magistrate that they have reasonable grounds to suspect that money has been obtained by unlawful conduct.’

Blick Rothenberg is warning the government’s plans to widen the job retention scheme to include part time working could see widespread abuse and fraud, with employers potentially tempted to exaggerate claims if they are in urgent need of cash.

Simon Rothenberg, a senior manager at the firm said: ‘This will make HMRC’s job in policing the scheme and auditing claims even harder and more time consuming, particularly for those working remotely.

‘Hundreds of workers have already reported employers for furlough scheme fraud. Employers have claimed furlough while asking staff to continue working and, in some cases, claiming the grant under the job retention scheme but not telling their staff this was being done.’

Rothenberg said that while the furlough scheme is most likely to be open to abuse, there are other government measures which could be open to fraud.

‘The self-employment income support scheme requires people to still be working in the business which they reported on their 2018/19 tax return, on which this scheme is based. But many may not be, and it will be extremely difficult for HMRC to check in the short term.

‘Another scheme which could be abused, are bounce back loans, given the lack of detail required to obtain the loan.

‘It is possible that companies will draw down on these government backed loans, withdraw the cash to pay the business owners (who, if they have been remunerated by dividends have received no support to date) and then liquidate the company if they do not see a possibility of returning the business to profitability,’ Rothenberg said.

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