Furlough enforcement and why employers need to be prepared

Robin Newman, Senior Manager, Employment Tax

It has been more than two years since the Government introduced the Furlough scheme to help employers through the COVID pandemic.

Although the scheme has finally come to an end, from HMRC’s perspective, that was when their work really began.

Estimates of £4.3 billion have been given in relation to furlough fraud and by March 2021, HMRC had opened 7,384 investigations into organisations for their use of the furlough scheme. In addition, by June 2021, HMRC had received over 28,000 reports from workers over potentially fraudulent claims made by their employers.

These statistics show why the Treasury announced £100 million worth of funding to HMRC to tackle fraudulent claims and errors, this also included a 1,250-person taskforce. The Government and HMRC are taking this very seriously given the amount of money involved.

The number of enquiries opened by HMRC has continued to increase and will likely last a number of years. Over the coming months, HMRC’s activity will filter down from those who have acted fraudulently to those who have made innocent errors. The scheme became complicated because of the many changes made during its life and it is not surprising that errors will have been made.

Areas of concern

While the majority of employers have acted faithfully, HMRC are still well within their rights to challenge any employer who has accidentally overclaimed through the furlough scheme.

HMRC will be looking to claw back any amounts that shouldn’t have been paid, regardless of why the errors have arisen. From our experiences with clients, and not considering any fraudulent activity, we have seen overclaimed grants for a wide range of reasons, including:

  • not realising that employees had undertaken work or were dealing with emails while on furlough
  • inadvertently claiming for employees who weren’t eligible
  • calculating the reference pay incorrectly
  • not following HMRC’s guidance when calculating the amounts to claim.

What to do now

As we move further away from the scheme, employers may be tempted to move on and put their claims to the back of their minds. However, it is important that employers are confident that no errors have been made or identify any errors that were made.

HMRC can charge penalties for errors leading to overclaimed furlough payments but employers are likely to face reduced penalties, or avoid them altogether, if they identify their own errors and voluntarily repay overclaimed amounts through HMRC’s online facility. Coming forward to make a disclosure unprompted to HMRC will always lead to a more favourable penalty position.

If there are errors in your claims, not coming forward and disclosing them is automatically deemed to be ‘deliberate and concealed’ behaviour, irrespective of the actual behaviour. This means that a penalty of up to 100% of the repayable grant can be levied, effectively doubling the payment to HMRC. Any employer with something to disclose, or facing a penalty challenge from HMRC, should seek appropriate specialist advice.

We recommend that all employers review their furlough claims to ensure they were correct at the time. The rules were changed many times during the payment period, so it was easy for inadvertent errors to have been made.

If you discover errors you need to notify HMRC immediately and make the repayment as soon as possible. We recommend seeking advice from your tax advisors to help with the disclosure to HMRC and to help negotiate any penalties.

Employers will be in a stronger position if they are prepared and disclose errors to HMRC rather than waiting for HMRC to instigate a compliance review.

How Crowe can help

Our experiences so far are that, despite best efforts during the midst of the pandemic and evolving guidance, innocent errors leading to overclaims are common. We have worked with a number of clients to review their claims, agree the quantum of overclaims and repay them to HMRC.

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.

Contact us

Dinesh Jangra
Dinesh Jangra
Partner, Global Practice Leader for Global Mobility