Are you more at risk of an HMRC investigation during our post COVID-19 recovery?

In a report for Taxation Magazine, Waqar Shah, James Watson and Emily Wright offer some timely advice to businesses during this difficult economic time. As they put it: “The UK’s financial health has not quite reached intensive care but it needs a sustained period of treatment and recuperation.”

The government is constantly juggling the demands of both the country’s economy and health. Within this, HMRC have their own role  to administer the different financial support schemes and continue to collect tax. We need every pound of possible revenue in order to rebuild the economy. HMRC are now returning to previously suspended investigation work in order to fulfil their role to maximum capacity.

What difference does this make to my business?

It’s likely that you’ve been focused on short term, emergency survival measures in your business. Just like everyone else. And HMRC suspended its investigations during the first lockdown, in order to comply with health measures and divert resources into setting up the Chancellor’s support packages.

As you begin to cautiously look to the future of your business, this report advises that you consider checking that you are fully prepared to meet your tax liability and have measures in place to prevent tax evasion.

Taking a little bit of time to review your situation now, means that you are fully prepared for any inquiries from HMRC later and protected from unwanted investigations. We should all expect to see a rise in HMRC prosecutions of businesses, corporations and wealthy individuals that avoid or evade their tax liabilities.

Corporate Criminal Offence Investigations

IN 2017, the Criminal Finances Act created two new offences, collectively known as Corporate Criminal Offences, they are:

  • “Failure to prevent the facilitation of UK tax evasion offences”
  • “Failure to prevent the facilitation of foreign tax evasion”

This new legislation requires companies to have ‘reasonable prevention procedures’ in place to stop tax evasion. It makes them criminally liable for the illegal actions of a ‘third party’. This ‘third party’ means an individual taxpayer and someone within ‘relevant body’ (company or organisation) who helped them evade the tax bill in question. That includes a direct employee, agent or someone delivering services on behalf of the relevant body. This applies equally to UK tax and tax you owe in a different country.

How many Corporate Criminal Offences (CCO) cases do HMRC investigate?

At the moment, HMRC are working 13 investigations and looking into 18 possible ‘opportunities’. Just since the 31st July, they have opened three new investigations. Currently these CCO cases span 10 different industry sectors, including: software development, financial services, oil production, construction and labour provision.

What happens if you’re convicted of a CCO offence?

HMRC can impose a financial penalty, without a maximum limit. And there may be other consequences to their decision, like confiscation orders. But the debilitating impact of a CCO conviction can be long term. For example, your company may be excluded from public procurement bids, increased scrutiny from HMRC and irreparable reputational damage. All of which will result in further financial losses into the future.

How do I protect my company from a CCO mess?

The key to your security is having those ‘reasonable prevention procedures’ in place. It’s likely that you put this policy in place when the original CCO legislation was passed in 2017. But have you reviewed it since?

Even if you do assess and amend it regularly, it’s unlikely to have been on the top of your list during the pandemic. And this is what you need to look at now. Your preventative procedures must be ‘reasonable in all the circumstances’. Given how much our working lives have been forced to change over this last year, are your CCO procedures still as effective?

There are so many elements that are worth considering:

  • Working in new locations and markets as part of your business’ survival strategy.
  • Stress of the situation leading to accounting and tax compliance mistakes as other parts of the business needed to take precedence.
  • Remote working: what extra challenges does this place on this specific tax evasion issue?
  • New staff, are they aware of your policy and procedures? This includes agency and contracted people.
  • If you’ve had to lose staff, remaining employees may have a heavier workload that they are having to tackle in a different situation.
  • Internal communications focused on current, quickly changing situation. Management commitment to eliminating tax evasion may need to be refreshed.
  • Regular reviews of your policy are in place in order to enable fast-paced adaptations to frequent changes of circumstances. Such as, moving between different tiers

As the report states: “This reminds us that managing risk in this area is not a one-off event and it needs to be revisited as the world around us changes and re-shapes.” And it’s not just about the accounts department all company teams are part of your overall strategy, from legal to communications.

Why is the government keen to back an increase in HMRC investigations into tax evasion?

The UK’s debt levels continue to rise as we pay for the cost of the pandemic. In order to pay for this, an option for the government is to raise tax and reduce tax relief. Neither of these are going to be popular and will inevitably cost some taxpayers. It’s likely that the Chancellor will need to make some changes to the taxation system in order to raise revenue.

In the meantime, there is the option of recouping tax from those that have intentionally defrauded the system or deliberately evaded tax. This idea of making sure everyone is paying their fair share is much more popular with most of the electorate.

What else do I need to know?

HMRC have restarted postponed CCO investigations and are already processing complaints of abuse of the Coronavirus Job Retention Scheme and the Eat Out to Help Out scheme.

CCO investigations

In a freedom of information release about CCO investigations, HMRC said: “HMRC continues

to progress CCO investigations and opportunities wherever it is safe for HMRC and its customers to do so. This is not about simply increasing the number of corporate prosecutions but changing industry practice and attitudes towards risk, encouraging organisations to do more to prevent tax crime happening in the first place.”

Eat Out to Help Out Scheme

HMRC said that they are investigating a famous fast food chain for defrauding the Eat Out to Help Out Scheme on the 9th October. The public support for this action can be seen by how widely this has been reported, even though this is still at the ‘investigating allegations’ stage.

Coronavirus Job Retention Scheme (CJRS)

Due to the urgency of the initial situation, the CJRS – otherwise known as the furlough scheme – was deliberately designed to get payments out as quickly as possible. Checking the integrity of claims was reserved for a later date. And now is that date.

If you made a claim through the CJRS, you have to keep those records for six years and have been sent a letter from HMRC suggesting that anything you’ve claimed incorrectly is paid back as a matter of urgency.

There is an ‘amnesty window’, so you can avoid a fine. One deadline was 20th October 2020, obviously this has already passed. The other deadlines are:

  • 90 days after you receive money you aren’t eligible for
  • 90 days after you get the CJRS money that you were entitled to, but new circumstances mean that now you are not eligible

Once you’re outside this amnesty window, you can get a financial penalty up to the total CJRS grant you received. And then there’s the unwanted dreadful publicity.

Where does HMRC get their information?

HMRC have three main sources of information from which they start their investigations: Connect, the Common Reporting Standard and members of the public.


Connect is government software that processes 22 billion pieces of data at any one time. It collates information about an individual or business from all the available data sources, including: financial records, the land registry and self assessment tax returns. It also taps into the goldmine of social media. It analysis patterns and highlights anomalies that could represent tax evasion. HMRC get 500,000 leads from this every year.

Common Reporting Standard

This is an agreement between over 100 countries to share financial information with each other, on an annual basis. HMRC find this particularly valuable when it comes to undeclared offshore assets and unpaid foreign taxes.

Members of the public

There is an implicit warning here that the consequences of COVID-19 may lead to more people whistleblowing about tax issues to HMRC. People that are angry about being made redundant or laid off have less to lose if they report their now ex employer for tax fraud or evasion.

The figures suggest this is happening at quite a scale. Between 1st April 2019 and 31st March 2020, there were just under 9,000 tip offs to HMRC. Between the launch of the CJRS in April and the end of July, there were already 4,500 reports to HMRC about employers defrauding the scheme.

Triple threat to businesses

The report concludes that all this amounts to an increased likelihood of being investigated by HMRC, post-pandemic, for three main reasons:

  • Improvements made by HMRC on their own processes and systems to make them more efficient.
  • Political pressure to recoup all tax revenue, supported by general public opinion that is happy to see people punished for tax evasion.
  • An increase in the number of unhappy ex-employees that are recently redundant or laid off, therefore willing to report their former employers to HMRC.

It’s not something to panic about. Just take some time to review your policies and procedures to make sure everything’s all up to date. If you’ve made any mistakes with applications to the various financial support programmes then talk to HMRC as soon as possible. Don’t wait for them to get in touch with you. And if you know everything’s accurate, make sure your records show the details.


Tony Shanks
Operations Director
Member of the ATT

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