Are your clients at risk of inappropriately using covid-19 related government reliefs
What approach will HMRC take and are your clients at risk? Here Cowgills Business Recovery director and insolvency practitioner Ben Cowgill provides his thoughts to assist accountants who may have concerns on behalf of their clients.
We have heard that HMRC plan to take an aggressive approach to business owners who they deem to have used government reliefs inappropriately.
It has been rumoured that Chancellor Rishi Sunak will seek to add legislation to the upcoming Finance Bill and this will enable HMRC to pursue individuals and businesses who they see as inappropriately taking advantage of support payments.
What will the penalties be?
If HMRC believes that a company has broken the rules of the furlough scheme, it will impose a 100% tax rate on the payments made. It is also reported it will use its 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 may also be handed powers to target beneficiaries of the SEIS Scheme and small companies that received £25k grants to help them through the crisis. If a business did not actually require a loan, or ceased trading soon after receiving financial assistance, it will require those investigated to prove otherwise.
Once the Bill has been passed, businesses will have 30 days to self-declare a mistaken application and repay without imposing a penalty.
What does this mean for your clients?
Many business owners may have taken the assistance from the government without fully understanding the strict guidelines and rules in place. Understandably it’s been a highly stressful time for many sectors, and, the introduction of these tax and penalty charges could be enough to cause further damage to an already volatile market.
While the insolvency service has reported a 30% drop in insolvencies in England and Wales in March 2020 compared with March 2019, it is widely thought that this is the calm before the storm. The drop was driven by a decrease in compulsory liquidations which fell by 80% year on year as HM courts and tribunal services reduced operational running. In addition to this the government announced the prohibition of the use of statutory demands and certain winding-up petitions until June 30th 2020.
Businesses owners should be forecasting for repayment of loans and the recommencing of pre-covid payment terms with creditors. It is likely that a number of businesses will experience cash flow issues and creditor pressure once normality resumes as debt on the balance sheet is likely to be increased following an increase in borrowings and delayed payments with trade creditors as well as HMRC.
We encourage you to speak to an insolvency practitioner on your clients behalf at the very earliest opportunity to ensure they are taking proactive steps. This is in line with their duties as a director and to ensure the best possible outcome for the business and its employees.
Our Business Recovery team includes four qualified insolvency practitioners, with a wealth of expertise, who can assess the solvency of a business and consider a range of options to best protect the interests of all stakeholders.
If you would like to speak to someone for a no obligation free consultation please do not hesitate to contact Ben directly firstname.lastname@example.org.
We work with accountancy practices across the country on behalf of their clients and can provide the very best level of support and service to enable the best outcome possible.
The information was correct at time of publishing but may now be out of date.