When the 2020 COVID-19 pandemic resulted in nationwide lockdowns and the resulting shutting down of businesses up and down the country, it became quickly evident that the majority of households in the UK would no longer be able to bring in a sufficient income.
This struggle extended to businesses both small and large, who very rapidly lost a large portion of revenue through not being able to operate as usual, either doing so on a reduced basis or not at all. The effect that this would have on the country’s economy would be disastrous; this is why the UK government decided to introduce a number of schemes designed to provide business directors with financial grants to ease the monetary burden.
Sadly, a number of directors and those in equivalent positions abused these schemes and misused the new income for purposes other than what they were intended for. It is due to this that a number of penalties are now being introduced to punish those taking advantage of the grants.
What are the planned penalties for the incorrect use of COVID-19 support packages
The penalties for the misuse of government financial grants have been proposed by the HMRC. If the HMRC has substantial reason to believe that a company has wrongly used a grant, a 100% tax rate will be imposed on those payments.
Further, the HMRC is also able to consider using its powers to prosecute those businesses or individuals that do not pay back the tax demands on the COVID-19 payments they incorrectly used.
How will these penalties affect you as a business owner?
If you either did not receive any COVID-19 financial aid from the government or you used it correctly and as you proposed you would, you should have no reason to worry.
However, the COVID-19 pandemic has understandably been a source of much stress for many business owners – not to mention how confusing the frequent changes to the schemes have been. Because of this, there is a possibility that there are some directors that have mistakenly used a COVID-19 support package they weren’t meant to, or have else used the money in a way other than what the scheme was intended to assist.
If you’re concerned you may be one of these businesses or individuals, it may be worth speaking to a professional that can advise you further.
Which schemes will HMRC be focusing its efforts on?
Predominantly, the HMRC will be introducing penalties for those that have incorrectly used the Self-Employment Income Support Scheme (SEISS) and Coronavirus Job Retention Scheme (CJRS).
In the case of the SEISS, HMRC will be seeking to reclaim incorrectly awarded grants through the aforementioned 100% tax rate on the payments. This tax rate will remain independent from the self-assessment tax return.
If you claimed anything from the CJRS on account of covering up to 80% of your employees’ wages while they were furloughed, you likely already underwent extensive checks to ensure that money was being used as it should have been.
However, some areas of the CJRS were left exposed, leading us to wonder…why now for the penalties? We cover that in more detail next.
Why are these penalties being enforced now?
Since the pandemic began back in March 2020, companies and individuals around the UK have been collectively awarded billions of pounds for business support. While much of this money would have been used as it was designated and with benevolent, honest intentions, there are some out there that used the support otherwise.
With England now once again open as normal and the rest of the UK steadfastly following, investigations are now beginning into how recipients of the schemes used their grants. This is especially true of the CJRS, wherein checks negated whether or not the employee in receipt of the furlough payments was actively working at the time, and how much was claimed through the scheme.
There have also been extensively reporting on businesses taking advantage of the CJRS furlough payments despite employees actively working still.
So what now?
The HMRC is now beginning to take action against those businesses that have used their financial help wrongly. It’s important to remember that the HMRC has the authority to carry out its own independent investigations into those individuals they believe may have misused the grants.
If this is the case, it is down to you either as the director of the company or as a self-employed business owner to prove that you were eligible to receive the funding you did, and also that you used the money as it was intended.
If you are concerned about anything mentioned in this article, then it might be best to search for Specialists in Director Disqualification and choose one to work with.