Be aware of Furlough Fraud! What developments have been made by HMRC to combat wrongful CJRS claims?

In the last few weeks, the press has increasingly been writing about more and more fraudulent and incorrect claims under the Coronavirus Job Retention Scheme (CJRS) also known as the furlough scheme. 

We know that over £35 billion British pounds have been claimed over the last 6 months for the furlough scheme. It is now being suggested that over £3.5 billion has been claimed wrongfully by various businesses. These claims have either been a mistake, were claimed incorrectly or are suspected to be fraudulent. 

HMRC is currently investigating over 27,000 suspicious, “high risk” furlough grant claims, with numbers expected to rise, as the furlough scheme has been extended until March 2021. 

Recently, HMRC has launched a furlough fraud hotline where people can report any suspected furlough fraud once they become aware of it. (Tel: 0800 788 887, Monday-Friday, 9am-5pm). So far HMRC is believed to have received over 8,000 reports of furlough fraud from employees and whistleblowers. As the number of redundancies grows, these whistleblowing cases are also expected to rise.

We first wrote about furlough fraud in August(here), where we explained what furlough fraud was and how you could spot it. This time around we want to call your attention to your liability as an employee or director of a firm.

What are the consequences of furlough fraud?

In August, the first furlough fraud arrest was made, where a firm has claimed close £500,000 fraudulently. Since then, more arrests have been made in September. A company director and accountant in London were arrested together, for allegedly claiming £70,000 worth of furlough wages fraudulently. It is expected that more arrests will be made in the coming months. 

In July 2020 the Finance Act 2020 came into effect, which allows HMRC to investigate and claim back furlough grants that employers were not entitled to receive. When a company is found to have claimed CJRS grants incorrectly or when it was not entitled to, HMRC will recover the whole amount through tax charges.

The Finance Act 2020 also grants HMRC the power to issue fines and penalties (up to the full amount of the wrongly claimed grant) for incorrectly claimed furlough money. As we have reported in August, there is a so-called “grace period” when employers can let HMRC know that they have claimed money incorrectly. If they own up to the wrongful claims within that period they will not be subjected to fines.

What are the deadlines of the “grace period”?

  • 20 October 2020 (now passed)
  • 90 days from the day the business received the incorrect furlough grant
  • 90 days from when circumstances have changed, no longer entitling the employer to the funds.

What happens if employers do not report incorrect funds on time?

If an employer has failed to report incorrect funds to HMRC and later gets caught, HMRC will treat the failure of notification as “deliberate and concealed”. This will immediately mean that the penalty issued will be 100% of the incorrectly borrowed amount of money.

What happens if somebody comes forward after the “grace period”?

If a business owns up to its mistakes after the grace period has passed, they will be liable to pay a penalty decided by HMRC. The penalty amount might be reduced to 30%. However, if the employer only comes forward after being prompted by HMRC the penalty cannot be reduced further than 50% of the incorrect grant amount.

What happened if the company is found guilty of furlough fraud, but they are under insolvency?

If a company is found guilty of furlough fraud, HMRC will subject the company to a tax charge. If the company is currently subject to an insolvency procedure and there is a serious concern that the company won’t pay the tax charge, management of the company will be personally liable to repay the relevant amount.

Persons of management can be directors, shadow directors and those who can directly or indirectly be responsible for running the company.

What else can happen?


As we have said in August, the directors and accountants of firms committing furlough fraud can also be subjected to criminal charges. Based on the Fraud Act 2006, those found guilty of furlough fraud could be trialled for cheating the public revenue, false accounting and money laundering. Significant prison sentences and the risk of being disqualified from acting as a director may await those found guilty.

To make sure you do not fall victim to any malevolent intent, GWA Law suggests you begin to undertake a furlough audit to avoid getting caught up with those who actually committed crimes.

GWA Law can act on your behalf to carry out an independent furlough audit for your company, to make sure everything  has been processed in line with the CJRS guidelines.

If you have any questions regarding furlough or furlough fraud & audits please do not hesitate to get in touch by calling  0161 917 5071 or by filling out the form below.

This publication is a general guide and summary of the law and should not be construed as legal advice. It should not be acted upon or relied upon in any way and should not replace legal advice which is bespoke to your particular circumstances.

 

GWA Law 2020©

 

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