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Mon 29 November 2021

HMRC annual accounts reveal billions lost in fraud through the Treasury’s furlough payments and Rishi Sunak’s eating out scheme

The Government has lost more than £5.8 billion through fraud on furlough schemes and Rishi Sunak’s infamous ‘Eat Out to Help Out’ initiative, according to new estimates released by the National Audit Office today.

The figures are nearly £2 billion higher than those estimated by the NAO last October, midway through the Coronavirus pandemic. So far, there have been virtually no prosecutions despite 30,000 allegations of fraud reported to HM Customs and Excise.

The NAO report on HMRC’s annual accounts for 2020-21 shows that the majority of fraud – £5.3 billion worth – came from the furlough scheme, which at its height helped 11.5 million people keep their jobs during the crisis. Some £60.7 billion was paid to employers to subsidise roles. This has been classified as ‘opportunist fraud’ rather than organised crime by HMRC.

The NAO report states: “HMRC’s current estimates confirm that employees working, either voluntarily or at the direction of their employer, while being claimed for furlough is the main source of error and fraud. Across 2020-21, it accounted for around two-thirds of HMRC’s current most likely estimate of error and fraud.” 

Most of the rest of the fraud identified involves “inflated claims, furlough payments claimed by employers but not paid over to their employees, and errors made in processing claims in the claimant’s favour”.

Chancellor Rishi Sunak’s ‘Eat Out to Help Out’ scheme is also a cause. Running for one month in August 2020, it encouraged the public to go to restaurants and have part of their bills met by the Government. HMRC estimated that £21 million in fraudulent claims were put in by the hospitality sector to HMRC.

“The main sources of the 8.5% error and fraud rate for the scheme were inflation of claims made by restaurants and food outlets (around half the total) and claims made by businesses which did not meet the eligibility criteria (around one-fifth),” the report states.

HMRC does not intend to follow this up as it considers that the small scale of the scheme does not warrant an investigation – so the firms are likely to get away with it.

The NAO is critical that HMRC has taken so long to tackle fraud. In March, the Government announced that it would establish a Taxpayer Protection Taskforce of 1,265 HMRC staff to tackle fraud within the COVID-19 support schemes, at a cost of more than £100 million. The report reveals that it only has a target of recovering £1 billion of the £5.8 billion over the next two years. So far this year, it has recovered just £98 million.

Gareth Davies, head of the NAO, said: “The COVID-19 pandemic has significantly reduced tax revenues and made it more difficult for HMRC to take enforcement action. Now that the initial impact of the pandemic has eased, normal tax compliance levels should be restored. HMRC also needs to recover money paid out through fraudulent claims made under the COVID-19 support schemes.”

Labour MP Meg Hillier, chair of the Commons’ Public Accounts Committee, added: “It’s time for HMRC to get back to business as usual. It must now strive to recover the fraudulent payments, track down the tax cheats and improve the services it offers to customers.”

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