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Danger: furlough fraud

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When the COVID-19 pandemic hit and the country went into lockdown in March 2020, the Coronavirus Job Retention Scheme (CJRS) was put in place to help employers to retain their employees on PAYE by placing them on furlough. 

The scheme saw HMRC pay 80% of employees’ wages, preventing the loss of millions of jobs and providing lifelines for businesses up and down the country. 

However, as the UK government was forced into this emergency response, the support packages were drawn up and rolled out within weeks, rather than years.

This meant that there was often no clear advice and guidance on when to use them, and some of the rules governing the schemes were added to or altered after the schemes had been implemented. 

Understandably, this caused confusion amongst business owners and has created an environment whereby companies may have unwittingly breached the rules. By doing so, they have potentially opened themselves up to a HMRC investigation and even prosecution. 

It is believed that of the £64 billion paid out under the CJRS, up to £4 billion has either been fraudulently claimed or paid in error.  This accidental and intentional abuse of the support packages led the chancellor to launch the Taxpayer Protection Taskforce to investigate fraud in March 2021.

The Taskforce has already begun issuing letters to businesses it suspects may have claimed incorrectly and encouraging voluntary repayments, but it’s expected to bolster its investigations in coming months, as it aims to recover over £1 billion in the next two years.

While some will have undoubtedly knowingly committed fraud, it is likely that some businesses who are unaware of their incorrect claims will also be caught up in the investigations. 

HMRC recognises that businesses may have made genuine mistakes and is unlikely penalise those that own up to them. However, those that don’t manage their errors could find themselves as the subject of an official investigation.

With that in mind, it’s highly recommended that business owners and HR departments conduct internal reviews of their CJRS claims to see if any mistakes were made at the time.  

However, that may be easier said than done, as identifying the line between an oversight and criminal activity can be quite challenging.

Furlough fraud is defined as:

  • Placing employees on furlough but asking them to continue working as normal;
  • Placing employees on furlough without their knowledge and allowing them to continue working as normal;
  • Changing the hours employees are working to maximise the grant monies; or
  • Making claims for non-existing employees.

This may appear clear cut, but it is quite conceivable that an employer may have broken the rules without realising. For example, a business owner may have furloughed their employee, but sent an email asking them to review a document that has been prepared. By definition, this would be a breach of the rules. 

For this reason, it’s essential that any internal investigation and due diligence includes a review of emails and text messages between employees. If multiple breaches are discovered internally, we would strongly recommend seeking legal advice and self-reporting to HMRC. 

It’s so important not to bury your head in the sand if discrepancies such as these are identified as it may lead to further problems down the line. 

Should you self-report a genuine oversight, HMRC is likely to simply clawback any grant monies that were paid out under the scheme.

However, if they find out at a later date, they could charge a financial penalty of up to 100% of the claim and purse prosecution for fraud – both of which would have impact on the business’ finances and reputation.

 

Neil Williams, deputy head of complex crime at Reeds Solicitors