Contractors, is the 52nd criminal investigation into suspected covid fraud going to unpick your limited company?

It’s arguably not the sort of stat to be proud of.

Maybe that explains why it wasn’t in his Autumn Statement 2023 but was instead snuck out into the House of Commons under the cover of quite a testy exchange.

Regardless, chancellor Jeremy Hunt has now admitted to 51 criminal investigations being live or underway into suspected covid scheme fraud, writes Gareth Wilcox, partner of Opus Business Advisory Group.

Covid still with us

So while it is now nearly four years since the onset of the coronavirus pandemic, the financial fallout is still very much in effect.

Bounce Back Loans, for example, were able to be repaid over a 10-year period. The numbers will therefore inevitably continue to dwindle over time but a substantial proportion of the limited company cases I deal with as an insolvency practitioner still have an element of covid support wrapped up within them. This, in turn, gives rise to a duty on me to investigate whether the covid support was obtained legitimately or not.

In addition to this, there are still some ongoing recovery actions being taken by HMRC, in relation to potential abuses of other seemingly long-forgotten covid support schemes. The Coronavirus Job Retention Scheme (CJRS) a.k.a. the ‘furlough’ scheme for example, and even prime minister Rishi Sunak’s surely far-from-greatest-achievement ‘Eat Out to Help Out.’

You can see why government is chasing BBL/CBIL/CJRS abusers

Owing to the scale of the support given during covid (£400billion to businesses and families), the government has a significant interest in prosecuting abuses. I have previously covered the potential for CIFAS markers and disqualification proceedings to be instigated against contractor-directors, where they are found to have obtained funds which they were not entitled to.

It is therefore little surprise that the government is continuing in this vein, in the shape of the over 50 ongoing criminal investigations now officially started into suspected fraud linked to covid support schemes. The chancellor also said last month in the Commons that tied to those 51 live covid fraud investigations, more than 80 arrests have been made.

Given the hefty financial amount of covid support granted, and the lack of take-on checks which were carried out at the time, it always was a grim inevitability that the system would be open to largescale fraud.

‘Got any dormants I can snap up? Good, I’ll take them all...'

Anecdotally, accountants say they got approached early on in the pandemic by people interested in paying large sums of money to buy ANY dormant companies on their books, so long as they had been incorporated long enough to apply for a BBL. Those people (shown the door by all accountants who tell this tale) would clearly not have been entitled to such a loan, owing to the company being dormant.

At the other end of the spectrum, there are many directors who despite often being well-intentioned, have inadvertently fallen foul of the rules -- a technical breach of the CJRS, for example.

HMRC now targeting directors personally, even if they were advised, professionally

Anecdotally and otherwise, I am aware of cases where this has occurred and attempts are now actively being made to recover substantial sums from limited company directors -- personally. And what will surprise if not disappoint some ContractorUK readers, this recovery attempt even impacts directors who relied on professional advisers to make the various claims for covid support.

If we give advisers the benefit of the doubt, this perhaps is a further indication of just how complicated some of the rules and conditions were, especially when set against the speed at which they were signed off.

What directors with concerns should actually do

Unfortunately, there is no one-size-fits-all fix if you’re a limited company with concerns. But it almost goes without saying that anyone on the receiving end of criminal proceedings should take legal advice at the first opportunity.

Alternatively, should HMRC bring a claim or instigate an audit into covid support claim made by your company, and let’s say your company is still trading, it is not a foregone conclusion that the HMRC-demand is payable.

Be aware, HMRC will take steps to seek a recovery of what will inevitably be the maximum possible amount. And to reassure those of you who fall into the ‘director who inadvertently may have breached covid support rules’ camp, it may be possible for HMRC’s demand to be mitigated. Even defended in full. It’s true that costs may be sensitive for directors deliberating over whether to reach out, but from I’ve seen in the suspected fraud space with covid, it’s prudent to seek professional advice (from an accountant or tax adviser) at the earliest stage possible.

No longer trading?

Also be aware though -- the situation is slightly more complicated where claims are brought by HMRC against a company which has ceased trading and/or is in liquidation. In fact, if a business has ceased to trade, it is unlikely there will be significant resources to defend any action by the Revenue. Worse, if a PSC is already in liquidation, there would ordinarily be no benefit to the liquidator in defending an action, since any claim would be an ordinary claim against the company like any other.

Unfortunately for such directors, however, there may be a mechanism for HMRC to seek a recovery from them personally -- should a sufficient degree of wrongdoing on their part be proved. In order to defend an action, access will be required to the books and records, so a director should ensure both of these are preserved. And if a liquidator has been appointed, it would be prudent to contact them to request copies of pertinent documentation.

Finally, the battle of resignation v pro-activity

Bear in mind, a claim being made by HMRC, if proven, can represent the difference between solvency and insolvency for PSCs on the receiving end. Despite a feeling of resignation at this stage often being easy to displace a feeling of proactivity, directors should note that it’s sometimes possible to restructure debts arising in these circumstances, and the earlier the discussions are held the better, rather than waiting for the inevitable recovery proceedings.