HMRC Compliance Checks – Furlough Claims

Overview
Thankfully, it’s been a while since the word “furlough” was mentioned in almost every other sentence. However, the issues arising from employers making furlough claims during those lockdown periods has, over the past few months become a political issue, with many references in the media to the amount of wrong or simply fraudulent claims made by employers.

As a result of pressure from central government, HMRC have set up a specialist compliance unit to investigate a significant number of claims. The statistics are quite impressive. HMRC currently estimate that approximately £3.3 billion to £7.3 billion of Coronavirus Job Retention Scheme payments were subject to fraud or error with the most likely estimate of £5.0 billion. This is out of the total of £98.3 billion paid out.

The task force set up by HMRC to review CJRS payments totals over 1,300 staff and was initially set a target of 27,000 cases to review. That target has now been revised to 30,000 cases, and it is likely that with each success by HMRC, the number of cases for review will rise further.

Undoubtedly, there will have been a number of claims made that were simply totally fraudulent. We do not focus on those in this note. We are more concerned with looking at claims that were made in error. It is clear from data published by HMRC that a significant number of CJRS claims were made in error, which in itself is not surprising given the speed with which the system was set up and the limited amount of detail available at the start of the scheme.

Whilst HMRC will undoubtedly take a far tougher approach on proven fraudulent claims, nevertheless they will still look to recover claims made in error. It is extremely clear to us, that HMRC are taking this very seriously. During the past few months, we have had several cases referred to us, where HMRC have issued winding up orders, as a consequence of those companies not settling HMRC’s claims.

Are you likely to be targeted for investigation?

HMRC’s investigations into CJRS claims have been underway for some time. If they believe that they have identified potential overpayments they will adopt one of two approaches:

• Where they have firm evidence, they will commence open formal tax enquiries.
• Where they have a belief of an overclaim, but no firm evidence at this stage, they will invite you to review your position.

If the business is not yet under investigation and it did make CJRS claims, the business should now, if it hasn’t already done so, review those claims to ensure that they were fully compliant with the rules at the time. In the event that it is established that errors were made, it is imperative that business should immediately contact HMRC to seek agreement to the quantification of any amounts overclaimed.

Financial Difficulties in Repaying Furlough Claims

The sole purpose of the CJRS scheme was to support businesses during Government imposed lockdowns. Since lockdown the business world has just about returned to some semblance of normality, although we are of course now facing a number of other significant financial issues in the UK, not least of which are the rate of inflation, the interest rate, supply chain issues and staffing issues. All of these are adding to the difficulties of running businesses.

Whilst HMRC are keen to recover as much as possible of erroneous claims made, they are also, to some small degree mindful that knocking over too many good businesses is not good for the economy generally.
HMRC have, for a number of years operated a Time To Pay scheme. This scheme has benefitted a large number of companies since its introduction and has been recognised as a route to avoiding insolvency proceedings.

Unfortunately, the CJRS scheme does not qualify under the TTP scheme. However, if it becomes apparent that the business may be liable to make repayment to HMRC under claims made for CJRS, and do not have such funds readily available, it may want to consider actually paying any CJRS scheme claim and then approaching HMRC for a TTP scheme in relation to its other taxation liabilities.

If you have any concerns about the possibility that you may have inadvertently made an erroneous claim, then now is the time to review those claims made. Bear in mind, that HMRC have the ability to charge interest and penalties which could significantly increase the amount of the claim.

Here at CFS, we have extensive experience in not only dealing with HMRC generally, but more latterly with issues arising out of this current position. If you are at all concerned, call us on 0115 838 7330 for an informal, no obligation discussion.

GOV.UK link: Measuring error and fraud in the Covid 19 schemes