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HMRC penalties double in six months as compliance activity steps up following first lockdown

The value of penalties HMRC is imposing on taxpayers each month has doubled in the last six months, following the lull in compliance activities during the first lockdown.
£41m was collected from penalties in November 2020, up 97% from the £21m that was collected in May. This is further evidence that HMRC is now actively pursuing investigations again and increasing pressure on taxpayers.
HMRC paused much of its compliance and investigative work during the first lockdown, resulting in a sharp reduction in the number of penalties being handed out. A huge number of staff in HMRC’s compliance teams were temporarily reassigned to work on the furlough and CBILS schemes during the early stage of the pandemic.
However, with the CBILS and furlough schemes currently due to end in April, HMRC is now turning its attention back to compliance work, with staff being re-assigned to work on investigations.
In particular, the Revenue has pivoted in recent months to investigating potential cases of fraud relating to the Government’s pandemic support schemes such as furlough and ‘Eat Out to Help Out’. HMRC is also now putting resources back into other core areas of tax investigation work.
HMRC’s own internal estimates show that up to £3.5bn may have been fraudulently claimed or paid in error from the furlough scheme alone. With the scheme having been extended until April 2021, there is likely to be an increase in the number of businesses that are investigated for potentially-fraudulent furlough claims in the coming months.
The billions of pounds that the Treasury has spent to try and stabilise the economy during the pandemic means that HMRC is going to come under huge under pressure to generate as much tax revenue as possible.
This means that HMRC will likely by looking to make up lost ground in 2020, leading to more investigations being opened. It is therefore likely that a further increase in penalties handed out will occur in 2021 as well.
Penalties can be handed out to taxpayers for underpayment of tax or for submitting a tax return late. Failure to notify HMRC of a change in your tax position which requires you to pay more tax can also result in a penalty being handed out.
The increase in penalties being imposed on taxpayers shows the importance of having insurance cover in place. Having appropriate cover in place can be vital for a business in ensuring that it does take too large a financial hit if an investigation is undertaken.
Tax payers who are most at risk of being investigated, such as small businesses that have made use of the furlough scheme, would be wise to ensure they have proper coverage in place.
Tax investigations can be very stressful and costly for those involved. PfP are specialists in this area and you can protect your clients against the cost of most tax investigations by offering a Tax Investigation Service. To find out how we can help, contact