Furlough overclaim probe threat as deadline expires

With HMRC writing to thousands of businesses warning them of investigation risk if they have incorrectly or fraudulently claimed job support grants, now is the time to get records in order, writes Philip Smith

In some ways, the 20 October deadline to amend overclaims is a phoney line in the sand. On Tuesday, it will have been 90 days since the passing of legislation that will enable HMRC to launch investigations into those businesses it suspects have made ‘overclaims’ through the furlough scheme.

On 22 July, the Finance Bill received Royal Assent, which triggered the start of a 90-day period for businesses to notify HMRC that they received furlough scheme payments which they were not entitled to receive or retain. This applies to both employers using the Coronavirus Job Retention Scheme (CJRS) and self-employed individuals who applied under the Self Employed Income Support Scheme as well as those who received other direct support grants in error.

However, this only applies to claims made before 22 July. There will now, effectively be a series of rolling deadlines dependent on when businesses made subsequent claims. Of course, this original period relates to a time when businesses would have moved very quickly to make claims, possibly in the knowledge that once they had fully reviewed their processes that overclaims might be identified and rectified, a point that HMRC has already accepted.

According to RSM, HMRC has already sent out 27,000 letters to businesses asking them to review their claims. ‘It is clear that you will need to do something if you receive one of these letters,’ says RSM’s Susan Ball. ‘You need to positively reply, even if everything is in order. If not, HMRC might investigate further.’

However, Ball adds that some of these letters may have gone to offices where there is no one there to act on them with people now working remotely.

In addition, Carolyn Brown, head of client legal services at RSM, notes that there have been 10,000 reports made to the government whistle blowing hotline about people who have been working, or asked to work, while on furlough. ‘It is obvious when a building site has been closed, but office-based claims could be a problem,’ she says. ‘We have the impression there will be a low tolerance for work activity.’

Even answering a simple email could be classed as work, and HMRC has tools available to interrogate systems, as well as asking employees to confirm that they have not carried out any work for their employer.

‘As well as following up whistleblower reports, we expect HMRC to use its Connect computer system to flag anomalies in claims, while looking at industry and sector norms,’ says BDO’s tax dispute resolution partner Richard Morley.

There is a fear that such issues could be widespread. ‘Everyone has a story about someone else who has been working while on furlough,’ Ball says.

As such, the advice is clear – employers need to rigorously double check their calculations, their processes and ongoing contact with furloughed employees to ensure they do not fall foul of the scheme’s rules. These rules will, of course have become more complicated once flexi-furloughing was introduced in the second phase of the scheme.

‘Phase Two was a real bane for employers,’ says MHA Macintyre Hudson’s employment tax director Nigel Morris. ‘We saw employers have problems aligning pay reference periods, and one of the biggest areas for error was in the pro rata of National Insurance Contributions.’

Morris believes that it will not be hard for HMRC to find errors, using IT systems, statistics and sector analyses to identify which businesses have received the most payments. ‘There will of course have been fraud,’ he says, ‘but I expect this to be low in percentage terms.

Morris adds that he expects the levels of penalties, which can be up to 100% to the grants claimed, will be driven by the work done by organisations to identify errors. ‘Internal reviews will help mitigate any penalty action,’ he says.

Carrying out simple tasks such as an email audit to check that no one has inadvertently breached the no-work rules and ensuring the correct reference pay has been applied and that no shortcuts were taken will help. ‘The sooner you voluntarily regulate an error, the more likely it is that you will avoid a penalty,’ Morris says. ‘Don’t wait for HMRC to find it.’

Morris adds that there could possibly be suspended penalties if an employer undertakes to ensure such mistakes will not happen again, though given that the furlough scheme is coming to an end, this might be difficult to apply. However, he observes that miscalculations could delay payments of CJRS bonuses, which would apply for those jobs that are maintained up to 31 January 2021.

Either way, the message is clear, it is worth putting in the time now, irrespective of the passing of any deadlines, to ensure that calculations and procedures are correct. Employers should also check they are following the right and most up-to-date guidance – according to RSM, HMRC has issued some 136 pieces of advice since the CJRS was launched.

So, the first deadline is here, but deadlines will exist for every subsequent claim, and employers should also remember to keep records – furlough agreements should be kept on file for five years as HMRC can review them at any time.

And as Ball points out, HMRC has already made arrests. ‘We are hoping HMRC will be lenient, but they want people to do something about it now.’

Philip Smith |Contributing editor, Accountancy Daily

Philip Smith is contributing editor at Accountancy Daily and a freelance journalist specialising in accountancy and tax matters. He ...

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