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Government starts fresh crackdown on Covid loan fraud

Government starts fresh crackdown on Covid loan fraud insolvency umbrella

Government starts fresh crackdown on Covid loan fraud insolvency umbrella

A new law will make it easier for tax authorities to investigate and prosecute directors that fraudulently claimed government support during the coronavirus pandemic.

The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act could also prevent some directors from dissolving their companies to avoid an investigation.

While some lawmakers have welcomed the crackdown, some business leaders worry the new rules could lead to a ‘witch hunt’, persecuting businesses that legitimately claimed Covid support.

Tom Fox, Licensed Insolvency Practitioner at Umbrella Insolvency said: “It’s important that the government acts to protect taxpayers’ money, but it’s important not to forget that Bounce Back Loans were a lifeline for many genuine businesses that faced massive challenges during the pandemic.

“We need to make sure we strike the right balance between cracking down on fraudulent activity and supporting businesses as they recover. It’s crucial this law change does not descend into a witch hunt against any firm that claimed government support.”

Government Covid support

The Bounce Back Loan (BBL) scheme was the major government support scheme used by businesses in the UK.

Through the BBL scheme, the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Larger Business Interruption Loan Scheme (CLBILS), UK businesses received almost £80 billion of support before 31 May 2021.

BBLs accounted for almost 60% of this total, with approximately one-quarter of all UK businesses taking out a Bounce Back Loan.

However, concerns have arisen about potential losses and fraud within the BBL scheme. In 2021, the Department for Business, Energy and Industrial Strategy estimated that 37% (£17 billion) of Bounce Back loans would not be repaid, primarily due to business failures.

The government estimates that between 1.5% (£480 million) and 7.2% (£2.3 billion) of outstanding debt will be lost to fraud.

In 2021, there was a 205% increase in the number of directors prosecuted for fraud following Insolvency Service investigations.

In one recent case, Kulwinder Singh Sidhu, 58, from Stanwell, was sentenced to 12 months in prison after pleading guilty to abusing the Bounce Back Loan scheme.

Sidhu applied for a £50,000 Bounce Back Loan before almost immediately dissolving the business and transferring the funds to his personal account.

Some sectors, such as the construction sector, have seen a higher number of suspected fraudulent claims. Over 4,800 Covid loans issued to construction companies are suspected of being fraudulent, with 4,792 relating to Bounce Back loans.

For more information on Covid loans and how you might be affected by this law change, speak to a member of our team today. Call: 0800 611 8888.