Confronting furlough fraud
WHEN THE UK was struck by coronavirus in March 2020, the Government quickly announced some innovative financial support packages to help the country see the virus through. One year down the road and the largest programme by some margin has been the Coronavirus Job Retention Scheme, more commonly known as furlough, which has so far cost the Government a huge £75 billion.
The scheme has been amended several times since it was implemented, which is unsurprising when you consider the complexity of putting in place such a huge programme in an economic environment that has changed so much over the past 12 months.
In essence though, employers who did not need their employees to work, due to a downturn of business arising because of the coronovirus pandemic, have been able to tell their employees not to work but they continue to get paid. The employer can then claim back up to 80 per cent of the employees’ costs from the Government.
An estimated £7 billionplus has been claimed incorrectly’
While these measures had some flaws, and in particular left some people not eligible for any support, the furlough scheme has allowed many businesses to survive the past year’s turmoil.
However, where there are such vast sums of money being given out, there is a huge scope and opportunity to make mistaken and fraudulent claims. No one knows exactly how much of the furlough monies has been claimed incorrectly but conservative estimates are around ten per cent of the totals, which means that more than £7 billion has been lost.
HMRC has been charged with policing the furlough payments and while it did not have the resources to do so at the start of the pandemic, it has now allocated £100 million and a team of more than 1,200 staff to find some of these lost billions.
Mistakes do happen and the legislation was new and complex. If genuine errors have occurred then they should be put right as soon as possible by contacting HMRC and paying back anything which was over-claimed. Unfortunately for some, HMRC has set up hotlines to report unscrupulous furlough claims and disgruntled employees are reportedly making good use of them. So if you think that you might have made mistakes, you would do well to review the calculations before HMRC finds out.
Fraud however does not come from errors in calculations, even when they are big errors. Common situations of furlough fraud were employees who were officially furloughed but were expected to carry on working, or where they were pressured to “volunteer” for their boss. Other instances were employers not telling staff that they were claiming furlough payments for them, employers claiming money from the Government and not passing it on to the employees or employers who registered ghost employees who had nothing to do with the organisation just for the purposes of claiming furlough grants.
A nasty sting in HMRC’s armoury is that it has legislated that any furlough payments wrongly claimed are treated like tax which is underpaid, rather than just additional income. For example, if a company has overclaimed £100 of furlough payments, the amount demanded will be £100 plus interest and penalties.
The penalty regime has also been set out in legislation defining that the behaviour relating to fraudulent furlough claims will be considered to give rise to a minimum penalty of 50 per cent of the lost tax, if HMRC opens the enquiry.
In addition, HMRC has said that in the most serious cases of fraud, it also has the powers to make company directors jointly and severally liable for the payments and to commence criminal enquiries. This means that just closing down a company may not be enough to avoid a tax bill.
These points are not meant to scaremonger, only to raise awareness. HMRC had no choice but to bring in legislation quickly which it knew would leave ambiguity and opportunities for error and fraud. The only way to mitigate these risks was to implement powers with sufficient teeth to demand repayments where errors had occurred and penalties for more flagrant abuses of the system.
While some enquiries have started, we have yet to see how successful and wide-reaching HMRC’s campaign will be. Clearly some errors will remain undetected, but we should expect that those which are discovered will be treated with a heavy hand, particularly where foul play is suspected. Although it might already be too late to avoid a penalty altogether for the earlier furlough claims, it is still better for you to make a voluntary disclosure than to get caught.
Genuine errors should be put right as soon as possible’