HMRC is reviewing allegations regarding the misuse of the Eat Out to Help Out (EOTHO) scheme following press reports that £250,000 of public money has been fraudulently claimed by 57 franchised Papa John's stores owned by Raheel Choudhary. HMRC has confirmed that an investigation is underway and it will not hesitate to take action against those who have exploited the scheme.
Papa John's GB Ltd has launched an investigation into the misuse of the scheme in its stores, all of which are run by franchisees. The allegations arise from an investigation by the Daily Mail which concluded that, despite Papa John's GB Ltd instructing all franchisees that stores were likely to be ineligible due to the fact they provide takeaway meals, stores processed thousands of discounted meals. Mr Choudhary denies any wrongdoing.
Risk of Fraud for the Hospitality Sector
The highly publicised EOTHO Scheme was launched by the Government to boost the hospitality sector in August after sales plummeted during the UK Lockdown. The scheme saw over 100 million meals claimed at an estimated cost to the Treasury of £522 million.
After the Government announced that £500m was to be set aside to fund the scheme, advisors warned of a risk of fraudulent claims in this and the other hastily implemented business and employee support schemes. As significant sums have been paid out by the Treasury, HMRC is now keen to show that it will actively investigate misuse of the schemes and pursuing enforcement measures where necessary. A HMRC spokesperson has confirmed that the agency "will check claims and take appropriate action to withhold or recover payments found to be dishonest or inaccurate [and] will not hesitate to act against those who attempt to break the rules".
Traditionally, HMRC's investigations target a specific sector of the economy and in the wake of the pandemic the hospitality sector will have attracted the agency's attention, as in addition to benefitting from the EOTHO scheme the sector also had the highest proportion of furloughed workers.
Investigations Gather Pace
HMRC has already charged individuals with fraud connected to the furlough and business support schemes and on 7 September 2020, Jim Harra, the head of HMRC, reported to the Public Accounts Committee that an evaluation of the EOTHO scheme to inform compliance work was already underway between HMRC and the Treasury. The deadline for claims under the scheme passed on 31 September and the sector should now be alert to potential investigations.
In August, HMRC wrote to 3,000 employers to ask them to check for "errors and small mistakes" in their claims for funds from the furlough scheme, but increasingly there may be no grace period for companies to redress wrongly claimed support payments.
The alleged misappropriation of funds by Papa John's originated from reports by whistle-blowers employed by Papa Johns. HMRC has encouraged whistle-blowers concerned about the abuse of the EOTHO scheme to make a report to them. These types of reports are expected to increase with the anticipated rise in redundancies across the hospitality sector.
While the EOTHO scheme was largely hailed as a success by participating restaurants, and with many take-away food services also doing well as a result of the lockdown restrictions, the implications of HMRC investigations and enforcement proceedings into the hospitality sector may be the next challenge for the industry.