HMRC Investigations are likely to increase – are you ready? In the post Covid-19 lockdown period HMRC investigations are already increasing.  HMRC have recently announced that they will tackle any abuse of the Coronavirus Job Retention Scheme and the self-employed scheme by bringing in new legislation.  So far, these schemes have cost the UK taxpayer more than £70 billion.

New tax legislation was rushed in after a short consultation period ended recently, with the new law expected to be in place from July 2020.  The legislation will introduce a 30-day window for employers to notify HMRC of any errors of deliberate abuse

There are various ways that an employer may potentially misuse the scheme, and HMRC is reviewing all of these through their well-established Risk & Intelligence Service and in addition there is an online facility for individuals to notify HMRC of suspected employer abuse of the scheme.

The Government has a number of concerns on how these COVID-19 related schemes are being abused. However, due to the complexity of the rules, some companies could be making genuine mistakes.

Pressure on HMRC

HMRC will be receiving materially lower tax revenue due to the closure of businesses and the deferral of certain taxes. There will be pressure on HMRC to take action where they suspect either fraud or that mistakes have been made.

In May 2020, just two months since the furlough scheme was introduced, HMRC went on record.  They are already conducting over 3,000 investigations into furlough “abuse” relating to their claim of potential misuse of the scheme. It is recommended that employers keep furloughed records for five years. It is likely that retrospective checks may be undertaken if HMRC believe there has been some level of misuse.

What can HMRC do?

What if HMRC determine that an employer has fallen foul of the scheme?  The very least they will expect the overpaid amounts to be returned along with interest. There is also the strong likelihood that a range of financial penalties will be chargeable to that employer.  Deliberate misuse will attract higher penalties than those who were careless.  In the worst cases, HMRC are likely to seek to investigate criminally.

HMRC’s approach, when they find misuse, will also likely be that they will also escalate those enquiries. They could look into other areas of the employers and business owners tax affairs. HMRC’s view is that if a taxpayer is treating their affairs incorrectly, or misusing the furlough scheme, then there is a strong chance that they are doing it in other areas.

The unfortunate result is a significant rise in the number of investigations, enquiries and visits to businesses. These often come without any explanation or justification. This can cause a large increase in the worry and pressure for many people. They will have to take time to defend their case and considerable expense is involved. This can only get worse with HMRC checking on Furlough schemes, Business Continuity loans and grants and Bounce Back Loans.

Business Records Checks allow HMRC to inspect records before the year end, at 7 days notice. There are potential penalties of up to £3,000 for any shortcomings they identify.

Further information from the Financial Times here

How you as a bookkeeper or accountant can help.

Your clients are likely to need your help at this point. They will need access to accounts and information they may not know how to find. A lot of calculations and evidence can be required. They might need reassurance from you that they have done nothing wrong. Would they like to avoid the hassle, stress and worry and just hand the whole thing over to their accountant or bookkeeper to deal with?

Avoid the stress

To avoid worry and stress for your clients, make sue if this happens you’ve got their back. To ensure they can cover the extra cost consider automatically subscribing all of your subscription clients to your fee protection scheme at no extra charge. You can also offer fee protection that covers one-off projects you complete for them.

This enables you to deal directly with HMRC on their behalf whenever they may make contact. In particular, should an enquiry be opened or if HMRC want to visit your client’s premises you can be there with them. The scheme covers your fees in defending their position, and ensuring that the stress is not worse than it could be.

If your clients receive any communication from HMRC, they can just direct them to your firm and you can take care of it on their behalf, which can often forestall any future issues.

Nor currently offering fee insurance to clients?

There are many insurance companies offering fee protection insurance for accountants and bookkeepers – a quick google will find them. You can either pay an annual set fee (the best option of you have a large number of clients). Alternatively, you can buy as need per client when you are signing each client up.

It’s quick, easy and a great service to offer to clients. Either bundle it in for free or do a e-mail offering it paid for. Either way it’s a win/win!