CJRS (Coronavirus Job Retention Scheme) compliance presents a significant challenge for the governance of all businesses claiming the support.
With the CJRS drawing to a close on 30 September 2021, HMRC has reported that more than £60 billion has been claimed by employers and over 11 million employees have been protected. HMRC has announced that over £1 billion of fraudulent or mistakenly claimed furlough payments is due to be recovered in the next two years.
HMRC has begun issuing ‘nudge’ letters to those it suspects may have claimed furlough money incorrectly, encouraging them to repay the money voluntarily if necessary.
What are the consequences of furlough fraud?
HMRC has wide ranging powers, from auditing and clawback of abusive claims, to penalties for failing to report an overpayment, to criminal investigations.
If a business does not notify HMRC of a furlough grant it overclaimed, it will be deemed a ‘deliberate and concealed’ activity, which can lead to a penalty which is 100% repayment of the grant.
The arrest of a 57 year old man from Solihull made the headlines in July 2020 when it was alleged he had defrauded the government out of £495,000 under the CJRS. Undoubtedly there will be many more criminal investigations as HMRC ramps up its efforts to identify fraudsters. The Crown Prosecution Service will decide whether a criminal charge should be pursued following an investigation of tax fraud from HMRC. HMRC has powers to search homes and business premises.
Companies and their office holders may also be exposed to liability where there has been a fraudulent claim under both the Finance Act 2020 and the Criminal Finances Act 2017.
What if the employer has erroneously overclaimed furlough grants?
There is a 90 day window within which to self-report overpayments of furlough grants. The window runs from the later of the date you receive the grant you are not entitled to, the date circumstances changed so you are no longer entitled to keep the grant or 20 October 2020. There is then a mechanism for repayment of the grant.
Encouraging rectification, HMRC confirms "If you do not do this [notify HMRC], you may have to pay a penalty. If you do repay any overclaimed grant, this will prevent any potential tax liability in respect of the overpayment of Coronavirus Job Retention Scheme. We will not be actively looking for innocent errors in our compliance approach".
The CJRS is a scheme that would ordinarily take two years to create and instead was rolled out in a matter of weeks as an emergency response to the pandemic. Guidance was updated frequently and there have been numerous Treasury Directions. It is understandable that mistakes can happen, as HMRC recognises in its guidance.
How those mistakes are managed is critical from a governance and compliance perspective. Failure to manage errors appropriately will cost your business time, money and reputation given there are publicly available records of the claims made by businesses.
HMRC investigations can take place with very little warning. It is important to be aware of HMRC's powers and to ensure that HMRC exercises these appropriately.
As lawyers, the advice offered by our experienced team can benefit from professional legal privilege providing you with a confidential review of your position.
If you have any concerns about claims you have made under the CJRS please do not hesitate to get in touch. If you receive a nudge letter or any contact from HMRC in relation to your claims the team at DWF can help you.