Furlough Fraud - The Coronavirus Job Retention Scheme (CJRS) Ends 30th September - What Happens Next?

Furlough Fraud is a problem that continues and will continue for many years to be an issue for Her Majesty's Revenue & Customs (HMRC). Most employers will receive, at a minimum, a review over the next few years, but many will be specifically targeted; a great deal of these will be as a result of employees reporting employers, once they have been made redundant. HMRC are already cracking down on unscrupulous employers and employees, even though the scheme will not end until 30th September. Random checks are being performed on companies, asking them to send over information relevant to a business and furloughing. If the information supplied gives cause for suspicion, they will follow up for more. It is easy for the government and HMRC to adopt the mindset of raking back as much of the money as possible paid in breach of the rules. When HMRC identify clear cases of furlough fraud, it is straightforward to get it back.

How Has Furlough Fraud Been Carried Out?

Whistleblowing organisations are encouraging employees to raise the issue internally first. It could be, for example:

• an employee was not paid what they were entitled to
• placing employees on furlough and then requesting they work as normal
• employees working in other jobs, for the same employer, when they were furloughed from their main employment
• pressing or encouraging employees to work on a 'voluntary' basis
• claiming on behalf of an employee, without their knowledge, and recovering 80% of the employee's salary, while the employee continues to work as normal
• claiming on behalf of a 'ghost' employee - someone who has been dismissed before the CJRS's start date of 19^th March 2020, or a non-existent employee who 'commenced work' following this date
• employers misrepresenting the working hours of staff, so that they can maximise payments recoverable from the CJRS
• employers making backdated claims which include periods when the employee was not working
• employers using the payments to fund redundancy pay
• claims have been artificially inflated in some way

In reality, incorrect claims could be errors or technical misunderstandings, such as volunteering, training, administrative duties, connected businesses, directors’ duties, calculation or clerical errors.

Penalties And Investigation

Claims will need to be repaid if the claim is based on dishonest or inaccurate information. The main penalties are:

• possible prosecution for employers, directors and company officers
• at the very least, there will be repayment of the wages, National Insurance Contributions and pension incorrectly claimed
• penalty of up to 100% of the lost revenue
• public humiliation of having your name published
• directors and officers can be made personally liable for any losses to HMRC if the company fails to repay the over-claimed amounts

HMRC have confirmed that they will not hesitate taking criminal action against the most serious cases.

What Action Should I Take Now?

Those who have received payments under CJRS should pre-empt any HMRC investigation and review their position as soon as possible. At Davidsons we can assist you to prepare for a potential HMRC audit by undertaking an internal review, which will include the following:

• looking at all relevant records and payments, as well as employee sampling where evidence is gathered from employees to show they were not asked or requested to work whilst on furlough. Importantly businesses need to retain records for 6 years.
• where anomalies are detected, a more forensic investigation (such as reviewing internal communications) might be required to help determine the behaviour involved and make a disclosure to HMRC

If you are in any way concerned about how claims for furlough payments and furlough fraud may affect you, whether you are a business or an employee, please contact a member of our specialist team as soon as possible. Proper management of HMRC is the best way of reducing the tax, interest and penalty as well as the time taken in resolving any tax dispute.