Introduction
The government, in response to the economic impact of COVID-19 on businesses, introduced the Bounce Back Loan Scheme during 2020 along with various other financial assistance packages for businesses, such as the Job Retention scheme (also known as furlough) and the Eat Out to Help Out
Now that the post pandemic economy is recovering, HMRC are identifying and monitoring fraudulent use of the various schemes and are looking to re-coup the funds, taking action against fraudulent claims.
There could be serious and severe consequences for making a false claim or misuse of funds.
Recap of the Bounce Back Loan Scheme
It was designed to help small and medium-sized businesses to borrow between £2,000 and £50,000, at a low interest rate, guaranteed by the Government.
The condition was that money lent to a company under the Bounce Back loan scheme must be paid back, over 6 or 10 years, with payments starting 12 months after the company received the loan.
If the money borrowed is not repaid, the company may be investigated by the Insolvency Service, even if it has been dissolved.
Issues on Application
There were a number of stipulations during the application process:
- One application per group
- Turnover must be represented by 50% trading income
- Can’t have any other COVID-19 finance
- Must not be in default of any other borrowing at date of application
- Must support trading or commercial activity in the UK
- Funds could only be used economic benefit of business
HMRC Identifying Misconduct
Types of misconduct can include:
- providing false information on loan application
- the loan being used for personal benefit
- dissolving your company to avoid repaying the loan
Implications of Misconduct
- The company could be wound up by the Court
- You could be disqualified as a director
- a Court Order may be made for you to pay compensation to your creditors
HMRC Case Studies – Bounce Back Loans
Case Study 1 – Two separate companies submitted false documents to at least 41 local authorities and the Government’s Bounce Back Loan scheme to secure £230,000 worth of funding put in place to support businesses during the pandemic, including Bounce Back Loans totalling £100,000, despite having never traded. Following an investigation by the Insolvency Service, the companies were wound up by the Court.
Case Study 2 – An application for a Bounce Back Loan of £30,000 was made by the director of a company which was in Administration and no longer trading, so would be unable to repay the loan. Although the money was used to pay one company creditor, the company’s other creditors were ignored and so not treated fairly. The director signed a disqualification undertaking which prevents him from acting as a director for 9 years from 25 October 2021.
Case Study 3 – A man obtained a Bounce Back Loan of £50,000 in May 2020 to which he was not entitled, for a business which had already stopped trading and the man having taken up alternative employment.
The money was also not used for the purpose it was intended, instead using it to repay third parties rather than to meet ongoing business costs.
He then declared himself bankrupt in October 2020, including the loan in his bankruptcy debts. As a result of his improper application for the Bounce Back Loan and the risk he posed to other creditors, he entered a bankruptcy undertaking which extended his bankruptcy restrictions for 10 years, meaning he is limited to what credit he can access, as well as not being able to act as a company director without the permission of the court.
Case Study 4 – A director obtained Bounce Back Loans of £150,000 across three companies which had never traded, and so were not entitled to the loans. The money was used for cash withdrawals by the director, and payments made to a company owned by a “close friend” and other third parties. He was disqualified from acting as a company director for 13 years as a result. His “close friend” was also banned as a director for similar reasons.