Employees who have been furloughed under the Coronavirus Job Retention Scheme (CJRS) are not permitted to undertake remunerative work for employers. This means that employers cannot ask employees to do any work for them or an associated or linked company that makes money for the employer or a company linked to or associated to the employer. However, employees can take part in training, volunteer for another employer or organisation, or work for another employer if contractually permitted to do so, while furloughed.

In its guidance on the CJRS, HMRC encourages employees to report fraud related to the scheme, and provides links to an online form through which they can do so.

The Finance Bill currently going through Parliament includes measures allowing HMRC to recover monies paid under the CJRS which the employer was not entitled to. It will operate by imposing an income tax charge equivalent to 100% of the CJRS grant to which the recipient was not entitled and which has not been repaid.

Under the planned amendments, if an employer notifies HMRC within 90 days of the later of when Royal Assent is granted to the Finance Bill, or when the income tax became chargeable, it will be able to repay money received under the CJRS without incurring any sanction or penalty. The bill is expected to receive Royal Assent later this month.

Andrew Sackey, tax disputes expert with law firm Pinsent Masons, urged employers to take advantage of the amnesty if needed.

‘An important condition of the CJRS is that furloughed employees cannot undertake remunerative work for their employer.

‘However, head office staff may be unaware that, in practice, local managers have been asking furloughed staff to work,’ he said.

Pinsent Masons points out that the income tax liability contained in the Finance Bill will not be limited to fraudulent claims for funding under the CJRS. HMRC may raise an income tax assessment on an employer where it believes that that employer has received a grant to which it was not entitled, regardless of whether the erroneous claim was made innocently, carelessly or deliberately.

The law firm says the circumstances when a person is ‘not entitled’ to a CJRS grant are drafted widely and include when the grant was not used ‘within a reasonable period’ to ‘reimburse the costs which it was intended to reimburse’.

An employer who does not notify HMRC within the 90 day 'amnesty' period, but who knew at the time that the income tax first became chargeable that it was not entitled to a CJRS grant, will be liable to a penalty on the basis that the wrongdoing was deliberate and concealed. There is a minimum penalty of 30% of the grant improperly claimed, and a maximum of 100%.

As of 1 July, employers can bring back employees furloughed under CJRS part time. From August, employers will be required to contribute towards the cost of the scheme.

Sackey said: ‘Whether remunerative work has been undertaken may be a binary position or it could be more nuanced and, as we now move into the new phase of “flexible CJRS”, understanding and maintaining a clear audit of whether staff are working or furloughed will become increasingly critical.

‘The draft legislation contains the civil power for HMRC to recover monies, and is the complement to HMRC's existing fraud and criminal investigation powers.

‘If firms discover that staff have been working, or if they have stretched the rules or not applied the monies as mandated, and don't take advantage of the amnesty, HMRC would clearly be able to use its full range of civil and criminal powers to investigate and, in circumstances where any tax offences have been committed, prosecute to send a strong deterrent message.’

In its analysis of the amendments to the Finance Bill, BDO said the proposed deadline for an amnesty on returning incorrectly claimed furlough grants is more generous than envisaged in the first draft of the legislation, when it was set at 30 days rather than 90.

However, the firm warned this may still present some practical challenges for businesses at a time when many will be focusing on getting back to business and making premises Covid secure. There could be particular problems with the CJRS as the claims calculation is complex and until 5 June, it was not possible to correct errors in claims for one furlough pay period by adjusting a claim for a subsequent period.

As the clawback amounts are treated as tax, they are due on the usual dates for individuals and companies (although for large companies tax on payments the companies were not entitled to will not affect quarterly instalment payments). It is not currently clear whether such clawback liabilities will affect individual taxpayer’s payments on account for 2020/21 but it does appear that they will not trigger an NIC charge, BDO said.

Where a company becomes insolvent but a clawback of a support payment is identified as necessary by HMRC, the former officers/directors of the business will have joint and several liability for the amount to be clawed back.

As of 31 May, 1.07m employers had made at least one CJRS claim since the coronavirus crisis began, with 8.7m jobs supported through the scheme, totalling £17.5 bn of government support, according to official statistics.