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Furlough claim accuracy

Is your business compliant?

Navin Sharma, Executive, Employment tax
19/04/2021
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The Coronavirus Job Retention Scheme (CJRS) has been extended to September 2021 in order to protect jobs, with the amount employers can reclaim still at the value of 80% of a furloughed employee’s wages (calculated using their reference salary), up to a cap of £2,500 per person, per month. Employers NIC and employer’s pension contributions can no longer be claimed (this was only available for claims up to 31 July 2020). From 1 July 2021, employers will have to increase their contributions. The government will cover 70% of salaries capped at £2,187.50 for July, 60% capped at £1,875 in August and 60% capped at £1,875 until the end of September.

The vast majority of employers have complied by the government’s rules. However, it is alleged that some have abused or taken advantage of the system. Reports from HMRC show they were dealing with more than 26,000 cases of furlough fraud by mid-March. This may have been as a result of submitting claims for staff who have continued to work, or by not paying staff the full amounts claimed. HMRC have introduced steps to detect fraudulent claims, but they are also actively searching for those that have defrauded the scheme. It has been suggested that as many as a third of employees have been asked to work while furloughed, according to a poll run by peoplemanagement.co.uk. Employees have been encouraged to submit anonymous reports to HMRC where their employers are fraudulently making claims.

As the legislation governing CJRS is new and complex, it is likely that many employers will have made innocent mistakes when calculating and submitting their claims, particularly at the start of the pandemic when the rules of the scheme were rapidly evolving and many CJRS calculator software packages could only accurately calculate the most straightforward claims.

Other reasons for innocent errors may have been down to accidentally making a claim in relation to an employee who is not eligible, administrative errors or even due to not being able to keep up with the many changes in the rules since the scheme was introduced. In addition, there have been reports of employees that have tried to be ‘helpful’ and have worked when instructed not to, without their employer’s knowledge (for example, checking emails and forwarding them to colleagues in the office to be dealt with).

Since February 2021, HMRC have published details of employers who have made claims in relation to December onwards. This list includes the organisation’s name, registration number (where applicable) and while they won’t publish the exact amount of claims, they will display the band within which the claims fall, for example, £0 - £10,000, £10,000 - £25,000, or £25,000 - £50,000. Also, when an employer makes a claim in respect of an employee, it is shown in the employee’s Government Gateway personal tax account (although this will not show the claim amount). Where businesses have falsely claimed for an employee who has continued to work, employees can notify HMRC of their employer’s wrong doing.

How to stay compliant

Contacting HMRC to notify them of an error is likely to reduce any penalty, compared to waiting for HMRC to carry out an inspection, in which case they are likely to apply more significant penalties even if the errors are innocent. HMRC has already created a facility to allow businesses to pay back over-claimed amounts for the CJRS and, if used to correct any errors, there is no need to make a further disclosure to HMRC. Figures show that one in five companies have still not reviewed their initial claim to ensure it was correct.

Employers were previously given 30 days to amend claims where they had knowingly or mistakenly committed furlough fraud. An amendment to the Finance Bill in 2020, extended the period to 90 days. Therefore, any errors for recent claims should be considered as soon as possible.

Now that many employees are starting to return to work on either a flexible or full time basis, employers should be checking their claims to ensure they have not over claimed or made any errors. Where employers are still submitting claims on a regular basis, errors can easily be offset against future claims. However, if an entity has no more claims to make, but has made an error in previous claims, we would recommend getting prior periods calculations checked before considering if HMRC should be notified of any errors, to ensure accuracy. 

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In summary

Given that the government undoubtedly intend to maximise clawbacks from those that have overclaimed, now is the time for employers to ensure that claims under CJRS are accurate and that detailed evidence is retained to prove eligibility. HMRC stated from the outset that they will be carrying retrospective compliance checks on furlough claims made, and require employers to keep all CJRS furlough records for six years.

During an inspection on CJRS procedures, HMRC are likely to expect to see evidence such as:

  • amounts paid and claimed in respect of each furloughed worker
  • communications with employees notifying them they were being furloughed and obtaining their agreement in their terms and conditions of employment
  • calculations of claims for furloughed workers
  • procedures in place to bring back furlough workers.

As HMRC are already taking compliance action with regard to incorrect claims, we recommend that employers seek a second opinion to check the accuracy of their claims given the complex nature of the rules.

If you would like assistance in checking your claims, or even help contacting HMRC to notify them of an error from a previous claim, Crowe can assist. Please get in touch with your usual Crowe contact.

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Andy Hamman
Andy Hamman
Director, Employment Tax
London