There is a bill passing through the Houses of Parliament right now that gives HMRC powers to make a company officer (eg director) jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which was never intended to be used to pay furloughed employee costs … in certain circumstances (details awaited).
That’s to say, if there’s a bogus claim and the company cannot repay the money to HMRC, say because the company has gone into insolvent liquidation, HMRC will come to each and every director of the company personally to repay it.
Note this is unlikely to be limited to the amount, if any, the director / company officer receives himself – it will be for all bogus claims, whoever receives it, including employees.
Note also the Fraud Act 2006, Section 12…
‘Liability of company officers for offences by company
If the offence is proved to have been committed with the consent or connivance of—
(a)a director, manager, secretary or other similar officer of the body corporate, or
(b)a person who was purporting to act in any such capacity,
he (as well as the body corporate) is guilty of the offence and liable to be proceeded against and punished accordingly.’
And Section 2…
Fraud by false representation
(1)A person is in breach of this section if he—
(a)dishonestly makes a false representation, and
(b)intends, by making the representation—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
(2)A representation is false if—
(a)it is untrue or misleading, and
(b)the person making it knows that it is, or might be, untrue or misleading.
(3)“Representation” means any representation as to fact or law, including a representation as to the state of mind of—
(a)the person making the representation, or
(b)any other person.
(4)A representation may be express or implied.
(5)For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).’
And section 3…
Fraud by failing to disclose information
A person is in breach of this section if he—
(a)dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and
(b)intends, by failing to disclose the information—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
And section 4
Fraud by abuse of position
(1)A person is in breach of this section if he—
(a)occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,
(b)dishonestly abuses that position, and
(c)intends, by means of the abuse of that position—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
(2)A person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act.
The point is directors cannot hide behind limited liability and commit frauds – there a longstanding principle … ‘the privilege of limited liability should not be abused, but if it is, the veil of incorporation will be lifted’.
Insolvency practitioners acting in connection with companies will be looking at claims made on the government by companies and will, if they find bogus ones, seek the money back from the directors personally through a combination of the Fraud Act and misfeasance provisions of the Insolvency Act 1986.
That’s to say directors who put bogus claims through their company could see themselves asked to pay either, or indeed both, the HMRC and liquidator. It will be a question of who gets to the directors’ assets first – I would not put my money on HMRC, not given how slow they are normally.
Paul Brindley
3 June 2020
Update 6/6: Extracts from HMRC’s guidance note:
104.HMRC will also, through these provisions, have the power to recover payments, by imposing a 100% tax charge, from anyone who has received a payment under the Schemes to which they are not fully entitled or anyone who has not used a CJRS payment to pay employee costs, PAYE, NICs and make pension contributions, and to charge a penalty where HMRC can demonstrate that an applicant has behaved deliberately.
105.The provisions give HMRC powers to make an officer of an insolvent company jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which was never intended to be used to pay employee costs, PAYE, NICs and make pension contributions in certain circumstances. Those circumstances are where the officer is
culpable for making a deliberate CJRS claim to which the company was not entitled and where the company enters insolvency. These powers also apply where HMRC can meet certain tests showing there is a serious risk that the company will be unable to pay the Income Tax assessment.
Here’s a link to Schedule 41 of the Finance Act 2008 which gives HMRC the power to charge penalties.