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CJRS: HMRC announces new compliance powers

Andy Hamman, Director, Employment Tax
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Chancellor Rishi Sunak will include new legislation in the imminent Finance Bill giving HMRC powers to investigate any business where it believes the strict rules for claiming the Coronavirus Job Retention Scheme (CJRS) grant have been broken.

Between March and June 2020, employers who made a claim under the CJRS have had to ensure that their employees on furlough did not undertake any form of work for the business. HMRC have been made aware of numerous allegations of employees continuing with their duties when they were supposedly furloughed or where amounts claimed under the scheme have not been passed onto them in full.

The impact

The new legislation will provide for a new 100% tax band and will give HMRC powers to recover monies from a business where it is proved that a claim under the CJRS did not meet the strict criteria set out by government. In addition, where a organisation fails to comply with a direction from HMRC to repay CJRS monies, criminal prosecution is likely to be considered for defrauding the public purse.

Once enacted, the new legislation allows for a limited 30 day window for employers to review, check the validity of any claims made  and if an error is found, notify HMRC. Failing to do this will lead to a penalty starting at 100% of the tax. This can be reduced if the right action is taken quickly but to no lower than 30% (or 50% if HMRC has already started asking questions), so repaying £100,000 of CJRS monies could cost double that amount once the penalty is added. The legislation also includes powers to impose the penalty on company directors personally where the HMRC officer perceives a risk that the company may become insolvent and unable to pay the tax.

What action do you need to take?

While we would ordinarily not expect innocent errors made by employers in their calculations to be the subject of the above actions, the new legislation deems all such errors to be both deliberate and concealed, rather than innocent, if not notified to HMRC before the deadline and HMRC has the right to question every claim made under the CJRS for accuracy.

In light of this we strongly recommend organisations to check their filed claims. In addition, from July 2020 the monthly changes to the scheme are likely to add further complexity and therefore an increased risk of errors (see here for more details).

If in doubt, get in touch

Our experienced Employment Tax team can assist with checking of filed claims and if needed, our Tax Resolutions team can advise on taking corrective action by disclosing the problem and ultimately reaching a settlement with HMRC including negotiating the lowest possible penalty  in all the circumstances.

The penalty legislation and associated case law is very complex so it is important that appropriate expertise is engaged to try and minimise the amount due – potentially a personal cost to company directors – by exploring arguments that no penalty should be levied or, if a penalty is due, that it should be set as close as possible to the minimum 30%/50% rather 100% of the tax.

For more information please speak to your usual Crowe contact.

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Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax