Tax consultancy firm warns HMRC fraud crack down could see ‘North East businesses in the firing line’

A crackdown on Covid abuse cases means more firms are being investigated by HMRC, says tax consultancy firm

HMRC has a renewed focus on tackling spurious COVID support, furlough payments and R&D tax relief claims. While all firms can be subject to scrutiny at any time, Markel Tax says data shows that claims were higher in the North East, making the region a prime target for scrutiny to spot potential fraud.

Even firms that operated entirely within the rules will find an HMRC audit time consuming and intrusive, according to the specialist tax advisory company. But by using a specialist firm, together with fee protection insurance, businesses may save a fortune.

“The Insolvency Service recently announced that over 450 directors were disqualified in 2022-23 for abusing the COVID-19 financial support scheme with Markel’s own claims data suggesting that one in 25 R&D claims are now being scrutinised. We only see this type of activity increasing, especially after scrutiny by the National Audit Office on pandemic performance and HMRC now seeking to claw back cash,” said James Cordiner, Tax Investigations Manager at Markel.

Markel believes three risk factors mean businesses in the North East will be a particular target for an HMRC investigation:

– The Covid Bounce Back Loan Scheme has been beset by fraud, increasing HMRC’s focus. With over 29% of North East firms taking a bounce back loan compared to a UK average of just 25.7%, North East firms won’t escape HMRC’s attention.

– Furlough offers another indicator with this scheme again open to abuse. North East firms furloughed almost 13% of their workforce, over 150,000 people, representing a significant number of the employed people in the region.

– The R&D tax credit scheme is a third area that has come under scrutiny in recent months with HMRC looking to reduce the number of spurious applications. North East businesses made almost 3,000 claims in the 2020-2021 year; 1.9% of the business population made claims, compared to a UK average of just 1.6%.

What it might mean for your business

HMRC tax investigations can be incredibly intrusive for businesses. Markel estimates that a typical enquiry lasts for between 18-24 months, with client firms paying in the region of £5,000 in excess accounting fees. At a time when inflation and the cost-of-living crisis is creating a highly challenging recessionary environment, this additional pressure could prove disastrous for employers across the region.

In last year’s budget statement, the Chancellor announced an additional £1 billion for HMRC over the next four years to tackle tax evasion and fraud, including investment in technology and additional staff to investigate cases. HMRC has also taken action to address the shortages in staff numbers, and recently recruited 4,800 new compliance staff, leading to 2,500 more in full time employment than in 2021–22.

“Tax investigations are higher on HMRC’s agenda and we’ve seen an increasing number of our clients being contacted,” said Colin Hamilton, Partner of Dutton Moore accountants based in Hull. “This extra work and expense for companies across the North East is adding additional pressure at a difficult time. We are supporting clients under investigation so that they have a robust defence and good outcome.”

“It is important that HMRC seek to recover the correct taxes from the right businesses but in doing so they will inevitably target businesses that may have done nothing wrong and are struggling financially. It is important to ensure that any check by HMRC is defended appropriately based on the facts of the case,” concluded Cordiner.

Markel Tax offers complex tax and funding consultancy services to UK accounting firms, allowing them to extend the range of services they are able to offer their clients.

Five hundred thousand businesses are protected from the costs of HMRC investigations through Markel’s fee protection insurance, purchased by SMEs directly or distributed through our accountancy partner firms.

Markel also operates one of the UK’s most successful business helpline services, supporting over 300,000 SMEs each year with their tax and legal challenges.

Go to www.markeltax.co.uk to learn more.