A spike in cases of directors of small aerospace companies being banned in Northern Ireland is understood to be linked to a tax clampdown.
At least 16 disqualification orders have been handed down to directors of firms involved in in repair and maintenance of aircraft and spacecraft in the past 16 months.
All 16 orders, which were pursued by the Department for the Economy, involved cases where a company director had applied for a bounce back loan.
Originally launched by the UK Government during the first wave of coronavirus lockdowns in April 2020, the bounce back loan scheme (BBLS) offered rapid access to finance for small businesses impacted by the pandemic.
Small firms were able to borrow up to 25% of their annual turnover, with payments capped at £50,000.
The provision of a government guarantee allowed commercial lenders to quickly release the funds to businesses.
But the absence of rigorous checks resulted in widespread fraud and error, costing the public exchequer hundreds of millions of pounds.
The Department for Business and Trade in London estimate that around £4.1 billion was lost in fraud and error from the BBLS.
The scale of the loss has in part led to a crackdown by HMRC.
Since September 2023, the Department for the Economy has published 24 cases were bounce back loans were involved in disqualification orders handed to company directors in Northern Ireland.
Of those 24 cases, 16 relate to businesses involved in the repair and maintenance of aircraft and spacecraft.
Some 10 of the businesses were registered at the same address in Carrickfergus, understood to be the address of the same accountancy firm.
Asked why the category accounted for two-thirds of all bans involving bounce back loans, a spokesperson for the Department for the Economy said an investigation by the Insolvency Service determined the firms were found to be principally personal service companies operated by individuals who were working for an employer in the aerospace sector.
“A personal services company is a limited company that is set up by an individual to provide a specialist professional service to a client organisation.
“This arrangement can have tax advantages for the individual, however, HMRC has been tightening the rules around this approach over recent years which has resulted in many ceasing to trade and subsequently being dissolved or entering liquidation.”
A spokesperson for HMRC said the ‘off-payroll’ working rules have been in place in the UK for more than 20 years to “ensure those who work like employees pay tax like employees”.
However, it’s understood that the scrutiny of bounce back loan recipients overlapped with reforms introduced to address non-compliance with the rules.
The reforms, which came into effect in the public sector in April 2017, were not extended to private sector firms until April 2021.
In effect, it moved the responsibility for determining whether the off-payroll working rules apply from the individual’s company to the client engaging them.
Cases of directors of aerospace companies being banned have accelerated in the current financial year, with 11 bans handed down, including five disqualifications in the past six weeks.
In most cases, the companies collapsed into liquidation just a few months after April 2021.
Of the bans published in the public domain, the sentences ranged from seven to 12 years.
