HMRC is gearing up to tackle incorrect and fraudulent claims for COVID-19 support payments. Last week HMRC's permanent secretary Jim Harra estimated that 5-10% of furlough cash has been wrongly awarded, which equates to up to £3.5bn. This explains why significant HMRC resources are expected to focus on reviewing and correcting claims made. Even companies with large HR departments are expected to have made errors, due in no small part to the often complex calculations and definitions of what constitutes ‘wages.’
What is ‘furlough fraud’?
In the past HMRC has shown a zero tolerance to fraudulent behaviour. But what are examples of ‘furlough fraud’? A fraudulent error may involve employers claiming despite not meeting the scheme’s criteria, e.g. claiming CJRS despite keeping staff working, false payroll records, intentionally not using the CJRS money as required or claims by organised criminals.
Other types of errors which may be innocent are transposition mistakes in data, an error in a date or computation when inputting the claims online. The rules are complex, particularly for partial furlough, National Insurance Contributions and salary sacrifice.
HMRC’s response
As well as following up whistleblower reports, we expect HMRC to use its ‘Connect’ computer system to flag anomalies in claims, while looking at industry and sector norms.
HMRC’s Fraud Investigation Service can conduct criminal investigations with a view to prosecution for cheating the public revenue or fraudulent evasion of income tax. In deciding whether to do so it would consider HMRC’s Criminal Investigation Policy.
HMRC has already shown that it will act decisively, following an arrest for suspected furlough fraud in July 2020, on Friday it was announced that two further people have been arrested over a suspected £70,000 CJRS fraud. We expect civil tax investigations using the Code of Practice 9 or Contractual Disclosure Facility process.
On 22 July 2020, legislation was enacted giving employers 90 days to disclose incorrect furlough claims. This period ends in just six weeks on 20 October 2020, and gives businesses a vital window to right any wrongs. HMRC also has a process enabling claimants to repay incorrect claims.
Next steps
Once the 90 day period passes, HMRC is likely to initiate a ‘gloves off’ approach to check claims made and pursue CJRS and SEISS claims using both criminal and civil powers. Focusing on those who knowingly made incorrect claims and failed to notify HMRC, on whom HMRC may impose significant penalties.
For those where HMRC suspects fraud, we can expect in-depth investigations into not just CJRS and SEISS claims but also the wider business affairs of those involved. The legislation includes penalties as well as powers to publicise defaulters online and to pursue company office holders where businesses become insolvent, with joint and several liability.
The CJRS and SEISS rules changed since the schemes’ inception. Plus many business owners implemented claims in a rush at the start of lockdown. Therefore, checking that the amounts and paperwork is accurate and the scheme criteria met is crucial.
Anyone concerned that they may have submitted incorrect CJRS or SEISS claims should review those claims as a matter of urgency. If a disclosure is needed, then specialist professional advice should be sought without delay.
Richard Morley is partner in Tax Dispute Resolution at accountancy and business advisory firm BDO
