The Coronavirus Job Retention Scheme (CJRS) was extended to October 2020 in order to protect jobs, with the amount employers can claim reducing each month from July and employers required to gradually start to make contributions towards workers’ wages.
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. The government estimates that up to £3.5 billion has been paid out as a result of fraudulent claims or by claims in error and HMRC state that they have received almost 8,000 reports of abuse of the scheme as of 7 August 2020. This may have been as a result of claims submitted for staff who have continued to work, or by not paying staff the amounts claimed, for example. HMRC has built in steps to detect fraudulent claims, but they are also actively searching for those that have defrauded the scheme. It has been suggested that as much as a third of employees have been asked to work while furloughed. HMRC has encouraged employees to submit anonymous reports to HMRC where their employers are fraudulently making claims. HMRC is now looking into 27,000 'high risk' cases where they believe a serious error has been made by employers. However Jim Harra, HMRC permanent secretary, has confirmed that "what we have said in our risk assessment is we are not going to set out to try to find employers who have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time".
As the legislation on CJRS is indeed 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 lockdown as the rules of the scheme were evolving and many CJRS calculator software packages could only calculate the most straightforward claims. Therefore this confirmation from HMRC that they will be targeted is very welcome. HMRC have stated however that where employers have made such innocent mistakes they are still expected to repay any amounts over claimed.
Contacting HMRC directly to notify them of an error is likely to reduce any penalty compared to waiting for HMRC to carry out an inspection, whereby 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 you use this to fully correct any errors, there is no need to make a further disclosure to HMRC.
Where errors resulting in over-claims are due to employers being careless, it is expected that employers will at least have to pay the overpaid amounts back to HMRC as an effective clawback by retrospectively taxing them as Income Tax or Corporation Tax at the rate of 100%, along with interest. It is anticipated that where HMRC believe over-claims have deliberately been made to misuse the scheme, penalties will be applied alongside interest. In extreme cases, the government will pursue arrests for fraudulent claims.
Employers were previously given 30 days to amend claims where they had knowingly or mistakenly committed furlough fraud. An amendment to the Finance Bill recently 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 calculations checked before considering if HMRC should be notified of any errors.
Given that the government undoubtedly intend to maximise clawbacks from those that have over-claimed, now is the time for employers to ensure that claims under CJRS are accurate and that detailed evidence is retained to prove eligibility to claim the grant. 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:
As HMRC is already taking action with regard to incorrect claims, we recommend that employers seek a second opinion to check the accuracy of their claims. Given that HMRC has allowed 90 days to fix any errors, this should be made a priority to ensure claims are accurate.
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.