Furlough, the friend with a sting in the tail!
June 16, 2022
Unlike many European countries, the UK did not have an existing short time working scheme, so the Coronavirus Job Retention Scheme commonly referred to as the “Furlough Scheme” was set up from scratch and was swiftly introduced in March 2020. It was initially intended to end on 20th May 2020 but extensions to the scheme have seen it continue to run. The scheme was easy and straightforward for employers to access and it has safeguarded many jobs.
At its peak in May 2020 30% of the UK workforce was furloughed with an estimated 11 million jobs have been saved by the scheme. The government have confirmed that employers have claimed £67.4 billion to support employee costs under the scheme
CLEARLY THE SCHEME HAS BEEN THE FRIEND OF EMPLOYERS AND EMPLOYEES ALIKE
The Sting in the Tail
Following the closure of the scheme on 30th September 2021, HMRC have been looking at the validity of claims made and they estimate that there have been fraudulent claims approaching £7 billion made.
How do HMRC know this?
Mainly from whistle-blowers. In a few short months after opening their hotline in early 2021 HMRC had received over 21,000 calls reporting breaches such as:
- Furloughed staff being asked to continue working from home whilst furloughed
- Furloughing staff without informing them
- Claiming furlough for “ghost” employees
- Newly recruited staff being immediately furloughed
- Employees returning early from sick leave to be furloughed immediately
- Claiming furlough for staff who did not qualify
- Overclaiming furlough pay
- Not passing on full amount of furlough pay to employees
- Deliberately providing false information to receive furlough pay
In response, HMRC have invested £100million in setting up a dedicated team to look to counter this fraudulent behaviour. This team is now actively engaged in making investigations to identify false claims and they can take the following action for any defaulters they find:
- Claw back payments and impose penalties which can be as high as 100% of the claw back amount
- Prosecute. Fraud carries a maximum prison sentence of 10 years.
- Naming and Shaming of persistent defaulters
How do I make sure my records are complete and what do I do if I get a query from HMRC ?
In both instances there are a number of do’s and don’ts
The important Do’s
- Do a review – Fully review your records to ensure full compliance with the rules. Remember that HMRC might seek to check any aspect of the rules being adhered to and can ask for any reasonable document that might be required to establish the position. This could be as simple as asking to see if email accounts were active during the period of furlough, when the employee was supposed to be undertaking no duties whatsoever.
- Do retain records – Even if you are confident that you have been compliant with the rules or if you have successfully addressed any HMRC queries already, you need to keep these records for six years to assist in any potential further queries by HMRC. This is a best practice and a legal requirement. The scope of what is included in records is potentially wider than you might expect and we advise caution when deciding what records you no longer intend to retain.
- Do seek advice – It cannot be stressed too highly that you will need to consult with suitably qualified advisers to deal with HMRC enquiries to ensure that you are treated within the powers afforded to HMRC within the legislation and that any settlement is correct and fair and any penalty is not excessive.
The important Don’ts
- Don’t panic – HMRC are entitled to request information to make sure the tax system is being operated correctly and that there have been no false claims
- Don’t ignore – Running a business can be a time consuming and complex exercise and it is often too easy to say “we will deal with this later” but HMRC enquiries will not go away. You need to be proactive and engage with HMRC at the onset is a clear confident manner and to show them your intention to be cooperative. Cooperation results in a large discount on any final penalty.
- Don’t ignore mistakes – You must inform HMRC immediately about any errors or overpayment found. Such action would reduce penalties and in certain circumstances would result in the penalty being suspended.
How can Hentons help?
Our team have over 30 years’ experience of all tax regulatory investigations conducted by HMRC and for peace of mind we offer a full review process as a health check to make sure you have operated the scheme correctly and to identify any problem areas to minimise exposure to any enquiry by HMRC. This would include
- A full review of payroll records and furlough claims and payments
- A full review of furlough records including communications with employees
- A review of email and internet activity of employee whilst on furlough
In cases where a response to a challenge by HMRC is needed this review would also include
- Guidance through the whole process
- Negotiation of settlement including penalty mitigation
We can even assist business owners who have deliberately overclaimed and risk being subject to a prosecution and criminal penalty. Anyone in that position should seek our assistance without delay to obtain the best possible outcome.
For more information or an informal discussion, please contact us via email at email@example.com or on 0113 234000.