On October 31, 2020, the UK Government announced new national restrictions, to run initially from November 5 to December 2, 2020. The furlough scheme was concurrently extended until December. As new claims are made under the extended scheme, and as detailed below, HMRC is expected to remain highly vigilant and continue to focus on tackling fraud.
On October 31, 2020, the Coronavirus Job Retention Scheme (CJRS, widely known as the Furlough Scheme) comes to an end. The CJRS entitled qualifying employees whose work was affected by the pandemic to receive 80% of their salaries, capped at £2,500 per month, from the UK Government. Since its introduction in March 2020, the Government has paid £41.4 billion to 1.2 million employers, allowing them to retain 9.2 million jobs, under the CJRS.1
Government is facing growing concerns that the CJRS was severely abused. In early September, HM Revenue & Customs (HMRC), revealed that it estimated up to 10% of CJRS payments were made on the basis of incorrect claims, ranging ‘from deliberate fraud through to error.'2 At the time, HMRC was ‘inquiring into’ 27,000 ‘high-risk’ claims. In a report dated October 23, 2020, the National Audit Office indicated that HMRC received more than 10,000 reports of suspected CJRS fraud to its hotline.3 Fraudulent claims might involve, for instance, employers making claims for employees who continue to work while on furlough, employers failing to pass on payments to their furloughed employees, employers making claims for employees they no longer employ, or employers inflating their claims.
HMRC has made clear that it would robustly investigate, enforce, and in appropriate cases prosecute, suspected fraudulent claims. In June 2020, the Department said it would ‘[not] hesitate to take criminal action against the most serious cases.’4 In July, it was given new powers under the Finance Act 2020 (FA 2020) to claw back any incorrect payments made to employers under the CJRS.5 In July and September, HMRC made three arrests in relation to two suspected CJRS frauds amounting to £495,000 and £70,000 respectively.6 In October, the Department planned to reallocate 500 compliance staff to the 10,000 highest-risk CJRS claims, with the aim of recovering £275 million.7 The Department also said it would hire private contractors to assist it with its compliance activities.
While HMRC intends to focus on ‘tackling abuse and fraud’ rather than ‘legitimate mistakes’, it has stressed that it ‘expect[s] employers to check their claims and repay any excess amount.’8 This expectation is embedded in the FA 2020, which imposes a duty on employers to notify HMRC of any incorrect claim of which they are aware within 90 days after the date on which they received the payment they were not (or no longer) entitled to, or by October 20, 2020, whichever is the later date.9 Any failure to notify HMRC will be treated as deliberate and concealed, exposing employers to a penalty of up to 100% of the incorrect payment.10 Employers’ names may also be published by HMRC on a list of deliberate defaulters.
Employers who received CJRS payments are therefore urged to check their claims for errors. Specifically, employers should review all the information they submitted to HMRC in support of their claims, track any changes in that information potentially affecting their entitlement to CJRS payments, and analyze the use of all CJRS payments received. Employers should conduct a thorough investigation into any irregularity that they identify or come to suspect as a result of that review. Whenever necessary, employers should not hesitate to seek advice from accounting and legal experts in order to mitigate the risk of civil and criminal enforcement action by HMRC.