Will I be investigated by HMRC for furlough fraud?


I run a small enterprise which was badly impacted by lockdown. I put most of my staff on furlough, but did this in a rush and have been concerned about HM Revenue & Customs’ campaign on “furlough fraud”. I found the application process very complicated, so it’s possible I made errors in haste. I want to make sure I’m not going to be investigated by HMRC, but I can’t find guidance. Should I contact HMRC directly or do I need to seek advice first?

Richard Morley, partner in tax dispute resolution at accountancy and business advisory firm BDO, says it is understandable that you are concerned given the recent publicity of arrests following suspicions of “furlough fraud”. According to HMRC, there have already been 8,000 calls to its fraud telephone hotline concerning furlough and 27,000 “high-risk” claims that HMRC is currently looking into.

Jim Harra, chief executive of HMRC, recently gave evidence to MPs at the public accounts committee about furlough fraud and other potentially erroneous coronavirus job retention scheme (CJRS) payments. Mr Harra said HMRC’s position is not to pursue employers who have made legitimate mistakes, but on tackling suspected abuse and fraud. HMRC believes up to 10 per cent of CJRS payments may have been made incorrectly, he added.

HMRC acknowledged that furlough support in respect of the CJRS was new and people had to make the claims quickly at a very difficult time. Of the 27,000 cases it identified, we understand HMRC’s first step will be to contact the relevant employers and give them an opportunity to correct their claims before taking further action. However, in addition to this, HMRC did confirm that it expects all employers to check their claims and repay any excess amounts.

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It is therefore important that as a first step you revisit and check the claims you’ve already made. In the event that excess CJRS payments were received, you ideally need to pay this back to HMRC by no later than October 20 2020. If this is not possible, a notification needs to be made to HMRC. Any excess CJRS payments also need to be included on tax returns and will be taxed at 100 per cent.

Richard Morley, partner at BDO © Louis Quail 2014

If there is no notification to HMRC and it is later found that there is an issue with a prior claim, the tax authority will treat this as a “failure to notify”. In this case, penalties may apply if it is not possible to demonstrate there was a “reasonable excuse” for not notifying HMRC.

HMRC recently updated its guidance online and published a compliance fact sheet titled CC/FS48. There are also a number of tools online to help you identify whether you have correctly claimed CJRS or not. Some specialist advisers will be able to provide a CJRS process risk review tool, which can help you identify whether further action is required or gives peace of mind on correct claims.

If, after reviewing your CJRS payments, you are still unsure whether the claims made were correct, you should seek professional advice before October 20.

Adam Craggs, partner at law firm RPC, says the government announced the introduction of the CJRS on March 20 to help employers avoid mass redundancies in the wake of the pandemic. Perhaps as a consequence of the speed at which it had to be rolled out, HMRC’s guidance on the CJRS was scant at the time of its introduction.

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Inevitably, mistakes were made and while HMRC has said that it will treat innocent mistakes sympathetically, it is likely to take a very dim view of employers who deliberately misused the CJRS. On July 8, HMRC arrested a 57-year-old man from the West Midlands as part of an investigation into a suspected £495,000 CJRS fraud, and this month an accountant and a company director from east London were arrested on suspicion of £70,000 furlough fraud following an HMRC investigation. Further investigations are likely to follow.

Many businesses are beginning to ask themselves whether it is a case of “act in haste, repent at leisure”. With the government estimating that £3.5bn was paid out on fraudulent or mistaken furlough claims, this concern is understandably at the forefront of many employers’ minds.

Adam Craggs, partner at RPC

Under section 106 and Schedule 16 of the Finance Act 2020, HMRC has the power to claw back furlough payments which were paid to businesses not entitled to receive such payments. This includes payments which were paid properly, but which the business ceased to be entitled to retain due to a change in circumstances. This could, for example, arise where a furloughed staff member resigned to take up another position, or where the person was required to return to work.

The way this clawback operates is to impose an income tax liability equal to the amount of the furlough payment that the person was not entitled to and is imposed either when they received the payment, or when they ceased to be entitled to retain the payment.

There is, however, an opportunity to notify HMRC of any errors or overpayments by October 20. You will need to say how much has been overpaid and make arrangements to repay, which will necessitate a careful review of your previous furlough claims.

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If HMRC is not notified of any error made within this amnesty period, it will be able to impose penalties, which can be up to 100 per cent, if the error was deliberate and concealed, and will not be less than 30 per cent. It should also be remembered that HMRC has confirmed that it will criminally prosecute in appropriate cases.

A thorough review of past furlough claims and disclosing any errors to HMRC promptly (and repaying any overpayment) will help businesses to reduce their need to “repent at leisure”.

The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.

Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com

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