HMRC Bounce Back Loan Investigation

HMRC Bounce Back Loan investigation refers to a process initiated by Her Majesty’s Revenue and Customs, the UK government’s tax and revenue collection agency, to examine potential cases of fraud or misuse of the Bounce Back Loan Scheme.

This scheme was introduced during the COVID-19 pandemic to provide financial support to small businesses affected by the economic downturn.

While the majority of loan recipients have used the funds as intended, some individuals or businesses have faced scrutiny due to suspicions of fraudulent applications, including false information, identity theft, or attempts to profit illegally.

The investigation is aimed at ensuring the integrity of the scheme and identifying those who may have abused it, while legitimate borrowers continue to receive the support they need.

It’s important to note that such investigations are a part of the government’s efforts to safeguard public funds and maintain the fairness and legitimacy of financial relief programs.

Why would a HMRC Bounce Back Loan investigation be opened?

HMRC open Bounce Back Loan investigations for a number of reasons, these include taking two loans, not matching the required quiteria or simply when your lender informs them that you have failed to comply with a request for further information.

Investigations are usually carried out by HMRC, The National Crime Agency, the City of London Police and the National Investigation Service  (NATIS) who are a law enforcement organisation with the responsibility for investigating cross-border, large, complex, serious organised crime relating to the public sector are also investigating suspicions of bounce back loan fraud.

If you are to be questioned it will be done at a police station and you will be invited to attend, followed by a summons to a Magistrates Court.

Bounce Back Loan Fraud – Key Stats

The loans where a lifeline for many businesses. According to the British Business Bank, if the scheme had not been in place, up to 500,000 businesses could have gone out of business permanently in 2020 alone.

Today, the government is collaborating with the National Investigation Service (NATIS) and the Insolvency Service (IS) to investigate cases of fraud and, where appropriate, recover fraudulent loans and penalise guilty parties.

Here are some statistics:

• During its existence, the Bounce Back Loan Scheme (BBLS) of the UK government funded around 1.56 million enterprises.
• Around £47.4 billion in loans were made available through the BBLS.
• Unfortunately, fraud and defaults will prevent the repayment of about £17 billion of the loans.
• 273 investigations into BBLS fraud have been started by the National Audit Office’s Taskforce for Anti-Money Laundering and Illicit Finance (NATIS), totalling £160 million (as of September 2022).
• 49 people have been arrested after NATIS took action against 78 suspects in the BBLS fraud (as of September 2022).
• The Insolvency Service has imposed 101 bankruptcy limitations, 242 director disqualifications, and one criminal investigation in connection with BBLS fraud (as of September 2022).

Bounce Back Loan Fraud: What Is It?

The Bounce Back Loan Scheme has been abused in a variety of ways. In a number of cases, fraud occurred when funds provided were used for personal expenses rather than business support.

For example, where:

• Using the funds to buy personal assets.
• Transferring a lump sum to a personal bank account.
• Giving some or all of the money to a friend, family member, or another third party.
• Using the funds to finance a significant increase in directors’ salaries or dividends.

There was also bounce back loan frauds when a director:

• Exaggerating the company’s turnover in order to qualify for the loan.
• Failing to disclose that the company was in financial difficulty at the time of the application.
• Dissolving the business in an attempt to avoid repaying the loan.

Other instances of BBL fraud include criminals:

• Made multiple or fictitious loan applications.
• Made fraudulent applications, formed a new company or acquired a shelf company.

Investigations and Compliance Checks

Companies that secured a loan through the bounce back loans must brace themselves for compliance checks by HMRC and banks regarding the Bounce Back Loan. Additionally, they should anticipate further probes into potential fraud related to the Bounce Back Loan scheme. Given that three such loans were granted every minute from May 2020 to March 2021, a vast number of businesses nationwide are affected.

Should there be any signs of misconduct, in-depth investigations will ensue. The type of inquiry, whether civil or criminal, will hinge on the specifics of the claims. HMRC, along with other UK agencies, possess extensive authority, encompassing rights to inspect homes and offices, confiscate electronic gadgets, and execute arrests.

This situation is likely to be especially worrisome for small to mid-sized enterprises that availed of the loan. Directors who had to wind up their businesses after obtaining a Bounce Back Loan should be particularly cautious, as their actions will be closely examined.

Directors who exploited the BBL Scheme will face consequences

Directors who engaged in deceitful actions or inadequately wound up a company with an unresolved Bounce Back Loan might face individual consequences. If a director is found to have neglected their responsibilities, they could be accused of inappropriate behavior, which may result in proceedings to disqualify them from directorship.

The disqualification period can range from two to 15 years. Additionally, other punitive measures, like Compensation Orders, can be imposed.

If found guilty, these actions may result in fines, imprisonment, compensation and confiscation orders, director disqualification, and Serious Crime Prevention Orders (SCPOs).

The first Bounce Back Loan fraud prosecution

The first criminal prosecution for Bounce Back Loan Scheme fraud resulted in the disqualification of a company director for seven years. In this case, the director applied for a £20,000 loan while failing to disclose that the company was being dissolved. The company had been dissolved by the time the loan was due to be repaid. The director used some of the money to give their family £14,000 in cash and the rest to buy a car and insurance.

The director pleaded guilty to charges of falsely claiming financial support from Covid-19 and admitted that they had no intention of using the loan for business purposes.

The Insolvency Service Response

In June 2022, two directors were sentenced to 11 years in prison for applying for £100,000 in Bounce Back Loans that their company was not eligible for. At the time of the loan application, the directors had failed to disclose that the company was in a company voluntary arrangement.

In August 2022, five more people were sentenced to bankruptcy for a total of 48 years for their involvement in similar fraudulent activity.

In each of these cases, the bounce back loans were:

• Overstating their turnover.
• Receiving loans for a company that had already ceased trading before the pandemic.
• Misusing the funds for personal expenses.

The Insolvency Service is working hard to identify and address BBL scheme abuse.

Furthermore, due to recent legal changes, directors of companies with outstanding debts (including BBLs) that were dissolved without being placed into liquidation may be investigated. The Ratings (Coronavirus) and Directors Disqualification (Dissolved Companies) Act permits directors suspected of misusing Bounce Back Loan funds to be investigated and sanctioned retroactively.

This means that even if a company was dissolved in the past, its directors could face an investigation and potential penalties for any fraudulent activity involving BBL funds.

Has an HMRC Bounce Back Loan investigation been opened?

Being the subject of an HMRC bounce back loan investigation can be stressful and upsetting, whether you are the director of a going concern, are in financial difficulty, or have dissolved your company since taking out a Bounce Back Loan.

Charges of Bounce Back Loan fraud could have serious personal consequences. So, even if you’ve only received a letter or a phone call from your bank or the Insolvency Service, you must contact us right away.

Need Bounce Back Loan legal advice?

With the increase in scrutiny on Bounce Back loans, there has been a noticeable uptick in investigations. If you find yourself in receipt of a letter notifying you about an ongoing investigation, it might be a prudent step to reach out to our team of Director Disqualification lawyers.

They are available to provide you with a complimentary initial consultation, during which you can delve into the specifics of your situation. This consultation can serve as a platform to explore potential strategies to safeguard your standing.

Over the course of our experience, we’ve successfully guided numerous directors in circumstances similar to yours, enabling them to navigate away from disqualification proceedings initiated by the Secretary of State.

Please contact our experienced team today for your free initial bounce back loan fraud investigation consultation.