Furlough fraud: how businesses can ensure their furlough scheme claims are lawful

According to a major new study, almost two-thirds of the 9.4 million workers furloughed during the UK’s lockdown carried on doing their jobs at home.

The study also suggests that about a fifth of staff on furlough in April and May were “explicitly compelled” by their bosses to break the rules by continuing to work.

These worrying statistics have focused minds among employers and HR professionals on ensuring that their use of the Coronavirus Job Retention Scheme stays above board, and there are no errors and poor record-keeping that could lead to an investigation by HMRC. So how can businesses ensure their Job Retention Scheme claims are lawful?

The job retention scheme was put in place to support employers who were not able to operate as usual due to the pandemic. However, some employers may have overclaimed, some without even realising it, and may face penalties. The Government has explained that the following actions constitute an overclaimed furlough grant, and thus could lead to furlough fraud:

·         any amount the employer was not entitled to receive; or

·         any amount they are no longer entitled to receive, e.g. because the employee they are claiming for is no longer employed by them

Employers will not be charged a penalty if they did not know of the overpayment at the time it was received, or at the time that their circumstances changed, and if it is repaid within the following time period: companies will have until 12 months from when their accounting period ends to rectify errors, and sole traders or partners will have until 31 January 2022.

On 1 July, HMRC updated its guidance on the furlough scheme to enable employers who have overclaimed through the scheme to either: correct this error in their next claim, or make a payment directly to HMRC if the employer will not be making any future claims. Employers will, however, first need to contact HMRC to receive a payment reference number before paying via bank transfer, online or telephone banking.

While errors can be rectified, failure to report this can incur such penalties as follows:

·         income tax charge – full overclaimed amounts may be recovered if HMRC make a tax assessment in the sum overclaimed, of which payment of the assessed amount will be due 30 days after the assessment (otherwise interest will be charged on the tax from day 31)

·         company officers can be made personally liable to pay the tax charged on overclaimed grants in the case of insolvency

·         100% penalty for failing to notify HMRC, within the below notification period, that the employer is chargeable for income tax on an overclaimed furlough grant

·         partners will be jointly and severally liable for any overclaimed grants repayable.

If employers repay monies overclaimed, this will prevent any potential tax liability relating to the overpayment of the grant. Notification of any overclaimed furlough grant payments need to be made within any of the following notification periods: 90 days after receiving the overclaimed payment, 90 days after the day circumstances changed, or 20 October 2020.

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