The Government is set to hand tax officials new powers

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The Government is set to hand tax officials draconian new powers in an attempt to claw back hundreds of millions in falsely claimed furlough and Covid-19 business grant payments.

Rishi Sunak will add legislation to the Finance Bill this week that will allow Her Majesty’s Revenue & Customs (HMRC) to go after those who broke coronavirus support payment rules.

HMRC is expected to focus on a number of high-profile companies that it believes may have asked staff to work despite taking the 80 per cent furlough payments from the Treasury’s Job Retention Scheme (JRS).

100% tax on misused Covid-19 scheme payments

If HMRC suspects a company has broken the rules of the JRS scheme, which do not allow furloughed staff to work while receiving up to £2,500 a month to stay at home, it will impose a 100 per cent tax rate on the payments.

The Treasury’s decision to take the unusual step of effectively introducing a new tax band has been made to ensure HMRC can use existing powers to prosecute businesses that fail to pay tax demands from Covid-19 payments that it believes were misused, obtained incorrectly or not necessary.

HMRC will also be handed powers to target beneficiaries of the Self-Employment Income Support Scheme (SEISS) and small companies that received grants of up to £25,000 to help them through the crisis. If HMRC suspects a business did not actually require a loan, or that a sole trader ceased trading soon after receiving money from the SEISS scheme, it will be able to put the burden on those investigated to prove otherwise.

Powers will become law next month

The draft legislation to hand HMRC the tough powers will be added to the Finance Bill, which is currently making its way through Parliament and is expected to receive Royal Assent from the Queen by the middle of next month.

Once passed any business or individual that has received cash from the JRS or SEISS schemes, which are due to come to an end on 31 October, will have 30 days to self-declare a mistaken application and pay the furlough cash or loan back without penalty.

If, however, HMRC decides an undeclared mistake has been made after considering filed accounts for the last financial year and the current one, it will launch an investigation and force those accused to show they did not break any Covid-19 support payment rules.

Ultimately, a failure to pay 100 per cent to cash back to HMRC could result in criminal prosecution.

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