End of the self-reporting window and the beginning of HMRC scrutiny and sanctions

By Brabners LLP

03 Dec 2020

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Employers across the country have taken advantage of the Coronavirus Job Retention Scheme (CJRS) which provided financial support aimed at retaining jobs during the early months of lockdown and beyond.

However, concern has been voiced that not all claims made under the CJRS have been legitimate. The Government believes that as much as £3.5 billion has been paid out in wrong or fraudulent claims, also known ‘furlough fraud’.

The Government has given, under the Finance Act 2020, new investigative and enforcement powers to the HMRC. This, coupled with a pressure to try and clawback an estimated £3.5 billion in overpayments, signals the stance the HMRC are likely to take in respect of pursuing and investigating these claims.

Although the CJRS has now need extended to 2 December 2020, thousands of reports of furlough fraud are believed to have been made already, giving HMRC a substantial starting point for investigation.

Whilst mistakes were inevitable in a scheme that was implemented at pace in response to an unprecedented situation, HMRC confirmed that it expected all employers to check their claims and repay any excess amounts during the 90-day amnesty period that in the main ended on 20 October 2020, but continues for 90-days after receipt of the funds for later claims.

It is important that employers understand what could constitute furlough fraud as accidental errors or technical misunderstandings do not provide a shield against HMRC sanctions.

HMRC have extensive powers to deal with any abuse of the CJRS and they have generic information and inspection powers that are being used to audit CJRS claims. Further to this, criminal sanctions are in place to punish any fraudulent use of the system and arrests have already been made.

What should employers be doing?

The grace period for self-reporting has ended and employers should expect, and be ready for, scrutiny. HMRC audits in respect of the CJRS and its usage have begun, and we are working with clients to assist with investigations, protect their position and minimise business disruption. We are providing this specialist support to clients in the context of a  scheme which has been notoriously difficult to navigate and subject to frequent change..

Further, as employers analyse their business and its balance sheets in order to survive the pandemic and its aftereffects many will be thinking about restructuring and, potentially, making redundancies. Employers should be aware that we have been alerted that some employees are using allegations of furlough fraud as leverage where employees are being considered for or being made redundant often in the hope it will bolster any pay-out. Employers should proceed with care in such circumstances and a proactive transparent approach to auditing should help to alleviate this issue.

In particular we recommend that all employers:

Expect HMRC scrutiny Proactively plan, with specialist assistance, an audit of all previous CJRS claims Retain all relevant records for at least six years as required by HMRC If you have any concerns regarding the furlough scheme, your use of the scheme or have had communication from HMRC then we encourage you to get in touch as soon as possible, a member of the Brabners employment team will be happy to help.

FAQ’s

What constitutes furlough fraud?

The following are examples of what could constitute furlough fraud:

Having employees work whilst furloughed even for a nominal period of time Not communicating to employees that they have been furloughed Claiming for employees who do not qualify for the CJRS Claiming for employees that have left or do not actually exist (ghost employees) Inflating employees’ salary to claim more

What are the HMRC powers?

Following the enactment of the Finance Act 2020, HMRC have extensive enforcement powers to deal with any abuse of the CJRS and they have generic information and inspection powers that can be used to audit CJRS claims.

Where mistakes are discovered, not only do the over claimed sums have to be repaid, HMRC can also impose a penalty charge on those who received a CJRS grant to which they are not fully entitled and/or improperly used the funds.

This charge will be equal to the value of the grant that has been incorrectly claimed or used.

Notably, in serious cases of fraud and specifically where a deliberate penalty has been charged, HMRC may publish details of the deliberate defaulter online for up to 12 months, which would bring with it a real risk of reputational damage.

If a company is insolvent and HMRC cannot recover the tax, directors may be held personally liable if the director knew of the wrongful claim.

What are the criminal sanctions?

Criminal sanctions are available, and individuals could be investigated and prosecuted for a number of serious offences:

Fraud by false representation Fraud by abuse of position Conspiracy to defraud Cheating the public revenue Money laundering

Corporates may be investigated for failing to prevent facilitation of tax evasion under the Criminal Finances Act 2017.

For more information on the topic, please contact Christine Hart. 

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