Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Rogue companies are exploiting the pandemic to profit at the expense of taxpayers.
Conclusion
Rogue companies are exploiting the pandemic to profit at the expense of taxpayers. We are concerned that rogue firms have been able to exploit temporary restrictions on insolvency action and the availability of covid support grants and loans to embezzle large sums during the pandemic. In particular, there is an increased risk from ‘phoenix’ companies (whereby individuals continue the same trade through a series of companies that are wound up, usually to avoid paying debts). While the NAO found that HMRC held no data on the scale of phoenix activity in the past, HMRC asserted that the number of such companies has not increased. It was not clear to us how it can be certain that this is the case, or how much taxpayer money is at risk, without management information. HMRC is developing a strategy to combat phoenix companies and is beginning to use new powers alongside its existing approaches to identify, and bring sanctions against, individuals involved in this practice. Recommendation: Alongside the Treasury Minute response to this report, HMRC should provide the Committee with a summary of substantive work it has undertaken to: • Estimate the number of rogue companies at risk of defaulting and the value of the tax at risk. • Ensure commensurate resources are in place to prevent such fraudulent activity. HMRC should be prepared to bring the full force of the law to bear on those who defraud the Exchequer, and report publicly and regularly to Parliament on the numbers prosecuted.
Government Response
Not Addressed
HM Government
Not Addressed
3: PAC conclusion: Rogue companies are exploiting the pandemic to profit at the expense of taxpayers. 3a: PAC recommendation: Alongside the Treasury Minute response to this report, HMRC should provide the Committee with a summary of substantive work it has undertaken to: • Estimate the number of rogue companies at risk of defaulting and the value of the tax at risk. • Ensure commensurate resources are in place to prevent such fraudulent activity. 3.1 The government agrees with the Committee’s recommendation. Recommendation implemented 3.2 HMRC has begun work to produce the first internal estimate of the scale and nature of risk posed by phoenixism. This is a complex piece of work because there are lots of factors that influence insolvency and determining if the insolvency is contrived or legitimate is difficult. This is expected by the end of May 2022. 3.3 This will inform improvements in the department’s approach to identifying and mitigating this risk in the future, as well as aid in resourcing decisions. HMRC is fully committed to using the full range of powers at its disposal to tackle those that set out to abuse the system in this way. 3.4 HMRC is also improving its IT systems specifically aimed at managing insolvency compliance risks, including phoenixism, which will provide increased data in the future. The first release of this system is scheduled for May 2022, with further releases planned. 3.5 To strengthen HMRC’s ability to tackle phoenixism, Schedule 13 and Schedule 16 of Finance Act 2020 provide enhanced powers to hold company directors liable for some debts owed to HMRC by their companies in specified circumstances. These include where there is deliberate behaviour and there has been avoidance / evasion or repeated insolvency. Schedule 16 relates specifically to HMRC Covid Schemes, where the department are recovering sums owed in respect of incorrect claims.