More than £31 billion pounds has now been claimed by businesses from the UK Government via the furlough scheme. At its peak, nearly a quarter of the workforce was furloughed.
During this period, businesses (and their advisers) have had to grapple with rapidly changing, often unclear guidance about what could be claimed and in what circumstances.
The Government has been clear that HMRC would have the power to investigate so-called “furlough fraud” and it has now enacted relevant provisions in The Finance Act 2020. This became law just over a week ago on 22 July 2020.
This Act gives HMRC the power to audit all aspects of furlough claims made by employers. In the event they find that claims have been made wrongly, or have not been used for the correct purposes (i.e. have not been used to reimburse staff), HMRC have the power to recover the entire amount claimed and issue an additional penalty of up to 100% of the amount claimed. In some circumstances, directors may find themselves personally liable.
Where HMRC finds evidence of fraud, this could also constitute a criminal offence, resulting in a prison term for those convicted.
In addition, businesses who become embroiled in HMRC investigations or facing penalties will no doubt find themselves on the receiving end of significant bad press and reputational damage.
Importantly, businesses are potentially at risk under the new provisions, even where they have made a genuine mistake; there is a real risk that HMRC will adopt a “fine first, consider explanations later” approach.
Some issues will be obvious, but other might be less so. Some examples of areas that are likely to result in HMRC investigations include:
- Making a furlough claim where employees have continued working (prior to the flexible furlough scheme);
- Asking staff to “volunteer” whilst on furlough;
- Furloughing employees who weren’t employed at the relevant cut off dates;
- Not passing on all of the claimed funds to employees;
- Making inappropriate furlough claims in relation to overtime, commission or bonus arrangements.
Even the most conscientious employer may find themselves at risk. The frequent changes to the furlough guidance means employers may have inadvertently breached the requirements and could face serious consequences as a result.
The Finance Act provides a 90 day grace period for employers to self-report issues to HMRC. If they do so within this time period, they will avoid the penalty fine. This clock is now ticking.
Employers would be well advised to check their furlough claims very carefully and, if they have any doubts about their actions, seek advice. Ultimately they need to self-report to HMRC to avoid these sanctions and penalties.
HMRC is already actively taking enforcement action. The first furlough fraud arrests have already taken place over an alleged £495,000 fraud from the Scheme by an employer in the West Midlands.
Our employment team have advised numerous businesses on the operation of the furlough scheme since it was introduced earlier this year, and we can answer any questions you might have about your claims.
We can also provide a full audit service if you have concerns or would just like some peace of mind.
Finally, if you find yourself facing an HMRC inspection, we can help guide you through the process and, where appropriate, make representations on your behalf, defend any allegations and challenge any penalties.
Richard Las, from HMRC's fraud investigation service, said: "The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. The vast majority of employers will have used the CJRS responsibly, but we will not hesitate to act on reports of abuse of the scheme."