Furlough fraud investigations: What should my business do?

Blogs 7 Sep 2020

HMRC are beginning the process of checking claims made under the furlough scheme and SEISS. Find out what you need to do, how to review your claims and why tax investigation protection is so important.


The launch of the Coronavirus Job Retention Scheme and the Self-Employed Income Support Scheme saw HMRC placed under pressure to process claims and pay grants as quickly as possible.

As a result, it led to a system operated on a ‘process now, check later’ basis, similar to the self-assessment tax regime.

As the furlough scheme begins to wind down, HMRC are risk-assessing claims paid to identify appropriate cases for compliance check at a later date, and have started to write to employers they believe may have claimed too much money.

Given the huge cost of the scheme and strong public opinion to act against those abusing the system, HMRC are under enormous pressure to recover money from those who have overclaimed, and penalise those who have abused coronavirus schemes.

Furlough fraud: What are HMRC looking for?

HMRC will use their information and inspection powers to check claims, and have introduced assessing powers to recover any overpayments.

The majority of businesses have used CJRS as intended, so there’s no need to worry, but due to the nature of the scheme, it’s been open to abuse by employers - so-called ‘furlough fraud’. This includes:

  • Employees working during furlough period
  • Employers claiming for fictitious employees
  • Situations where circumstances changed and impacted eligibility
  • Furloughed staff returning to work earlier than expected
  • CJRS grants not paid to employees within a ‘reasonable period’

Therefore, HMRC will want to check a number of the claims made by employers during the scheme. In July 2020 alone, HMRC announced they are considering 6,749 cases of potential misuse of the CJRS.

What could happen?

In the most serious cases, where potential fraud is involved, employers may be subject to scrutiny by HMRC’s Fraud Investigation Service, or even criminal prosecution.

A ‘whistleblowing’ hotline has been set up by HMRC to report any abuse or misuse of the scheme, and thousands of reports have already been made.

In July 2020, HMRC made their first arrest in the West Midlands connected to a CJRS claim, showing that HMRC are taking this matter seriously.

What should my business do?

Don’t panic. Employers should check claims now and notify HMRC of any amendments required to avoid being targeted for a compliance check later.

Legislation has been announced that allows you to notify HMRC of any known or accidental misuse of CJRS by a certain date and not face a fine.

  • Carefully review any CJRS claims that have been made to ensure entitlement.
  • Check that any paperwork is up to date to support the CJRS claim being made. This enables HMRC to be satisfied that the claim was valid, should an enquiry be started.
  • Make a report to HMRC in respect of any amounts claimed in error to avoid any potential enquiry by HMRC and reduce the potential penalties being charged.

If you’re unsure, FSB members can speak to a tax specialist through FSB Tax Investigation Protection, who can answer your questions.

How to notify HMRC you’ve claimed too much

It’s important that you’ve reviewed your claims carefully to check the amount you’re claiming for the furlough scheme or SEISS is accurate. HMRC has released detailed guidance on what to do if you’ve claimed too much. There is also additional guidance for SEISS overpayments.

If you’ve received too much, you must pay this back, or you may have to pay a penalty.

When is the deadline?

For CJRS, you must tell HMRC by either:

  • 90 days after the date you received the grant you weren’t entitled to
  • 90 days after the date you received the grant you were no longer entitled to because your circumstances changed

For SEISS, you must tell HMRC within 90 days of receiving the grant

How do I tell HMRC?

For CJRS:

  • Notify HMRC as part of your next online claim. This will mean your next claim is reduced, and you’ll need to keep a record of this for 6 years.
  • If you’re not making another claim but still owe money, you can call HMRC on 03000 322 9430 to pay the money back.

For SEISS:

Use the Government Gateway to complete an online form, which will give you bank details for paying back the grant.

You’ll need:

  • Government Gateway user ID and password
  • Grant claim reference
  • Self-Assessment Unique Taxpayer Reference

What is the penalty for not declaring overpaid claims?

New legislation gives HMRC the power to raise income tax or corporation tax assessments to recover CJRS and SEISS grants you weren’t entitled to, or where CJRS grants were not used to pay furloughed workers.

  • It will be tax geared and the percentage charged would depend on the actions of the business.
  • If the claimant knew that the claim was incorrect and they did not make a notification to disclosure the error, then HMRC would consider this to be deliberate, attracting a high penalty.
  • For companies, if any directors or officers are considered culpable and the company is unable to pay the penalties, HMRC can, subject to certain conditions, recover the amounts directly from the directors or company officers.

For partnerships, if only one partner knew that a claim was incorrect, all other partners are treated as if they also knew.

What happens during an HMRC PAYE Compliance review?

If you’re selected for investigation, HMRC will typically ask to visit your business premises to review the payroll records - this may also consider any claim to CJRS. Check out our complete guide to HMRC enquiries for small businesses for an in-depth look at what to expect.

It’s likely to involve a review of the payroll payments made to employees, including furlough payments, to ensure CJRS payments were made to employees and the correct tax and NIC was deducted.

Following an initial visit, there are three possible outcomes:

  1. HMRC accept all is in order or only minor adjustments may be required, to which you agree. In this case, the matter would be closed.
     
  2. HMRC don’t reach a conclusion and instead ask for more information or documents to continue their review.

    In this case, FSB members can make a claim with FSB Tax Investigation Protection, and one of our Investigation specialists would be appointed to deal with the HMRC correspondence on your behalf.
     
  3. HMRC contend that you owe additional Tax or have claimed CJRS in error and you disagree, so in effect, you have a ‘dispute’.

    In this case, FSB members can make a claim with FSB Tax Investigation Protection, but there would need to be a reasonable prospect of reducing the liability being sought by HMRC.

How can FSB help?

No matter how diligent you are with paperwork, dealing with HMRC tax investigations in your business can be stressful and time-consuming, which is why having access to FSB Tax Investigation Protection is essential.



 

Wave goodbye to tax enquiry worries

FSB Tax Investigation Protection provides comprehensive support and tax investigation insurance for most business-related HMRC enquiries, all at no extra cost. We’re on your side.