Coronavirus Job Retention Scheme: Warnings against fraudulent claims

David Edwards, Harrison Drury’s regulatory and compliance team outlines the risks to businesses that do not follow the strict guidance when applying under the government’s scheme to protect employees during the coronavirus COVID-19 pandemic.

The Coronavirus Job Retention Scheme (CJRS, or ‘Furlough Scheme’) is a temporary government measure open to all UK employers to help them retain their workforces and continue to operate during the coronavirus pandemic.

The scheme allows employers to ‘furlough’ staff from March 1, 2020 to May 31, 2020, and then submit claims to  the HMRC’s online portal and claim reimbursement of up to 80 per cent of an employee’s salary or wages, subject to a gross cap of £2,500 per month.

Further details regarding the scheme can be found in our blog post: The Coronavirus Job Retention Scheme – Guidance for employers

Submitting a claim for furloughed employees

The online portal set up to make claims for furloughed employees will be open from April 20, 2020. To be eligible to make a claim under the scheme, an employee cannot undertake work for, or on behalf, of the organisation or any linked or associated organisation whilst on furlough. This includes providing services or generating revenue.

As part of the application process to make a claim on the portal, the employer will be required to make a declaration they have complied with the rules of the CJRS, including that ‘furloughed’ employees have not worked during the time they are said to be furloughed.

It is intended that payments will be made within four to six working days of submission on the portal to provide HMRC the opportunity to test for incorrect and/or fraudulent claims.

Employers who do not understand the rules of the scheme, or have not sought legal advice prior to furloughing staff, may unknowingly have failed to comply with the rules of the CJRS, and may risk investigation and enforcement action by the government. It is therefore strongly recommended to seek legal advice as soon as possible in order to comply.

HMRC is alert to the possibility of employers abusing the scheme, and a result of this, there is an employee hotline for employees to report employers who abuse the scheme.

Further details regarding accessing the portal and what information is required to make a claim are outlined in our blog post: Coronavirus Job Retention Scheme: Making a claim

Retrospective audits by HMRC

As stipulated in CJRS guidance, HMRC will retain the right to retrospectively audit all aspects of an employer’s claim. Although it is unknown the degree to which HMRC will audit claims, considering the likelihood of fraudulent claims, and huge amounts claimed under the scheme, HMRC will most likely undertake wide-ranging and extensive investigations.

Consequences of fraudulent claims

Businesses, as well as their directors and officers, risk criminal investigation, prosecution, heavy fines and criminal convictions for declarations made which are proven to be incorrect and/or misleading.

Where a decision is taken to prosecute a company, and where that company is an owner managed SME, it is likely that proceedings against a director or officer of the company will also be brought at the same time, because there would be a reasonable prospect of a court being persuaded that the offence committed by the company was done with the consent or connivance of, or has been attributable to any neglect on the part of the director and/or officer.

Legally speaking, ‘neglect’ of a director or officer can include a situation where they ought to have been aware of what was happening.

There are a range of actions the government could take for the recovery of monies claimed fraudulently under the CJRS, or to penalise organisations that have made fraudulent claims, these may include:

• Naming fraudulent companies and directors
  The government may consider operating a policy of naming businesses and directors who have made a false claim under the CJRS. Although it does not appear the most severe of measures, it will greatly tarnish the reputation of any such named companies and directors.
• Requesting repayment of monies claimed and possible penalties
  The government may consider issuing penalties of up to 200 per cent of fraudulent monies claimed under the CJRS.
  The usual enforcement proceedings will be pursued by HMRC for organisations failing to repay monies if requested to do so.

• Criminal investigation and prosecution pursuant to the Fraud Act 2006
  Directors who have made a false claim under the CJRS will likely have breached section 2 of the Fraud Act 2006, pertaining to fraud by false representation.
  If such enforcement is actioned, directors, if found guilty, may be subject to a fine, community order and/or imprisonment depending on the severity of their fraudulent conduct.
  In the most severe of circumstances, this may lead to possible director disqualification proceedings on the grounds of unfitness.

The above outlines just a selection of enforcement actions that HMRC may consider taking in respect of fraudulent claims.

Legal advice should be taken to consider the measures businesses can be taking now to understand if their furloughed employees have worked or are working whilst furloughed – there are options available to businesses, such as email monitoring – that itself is a complex area of law, and any monitoring of employees’ emails requires proper thought and procedure.

If you are a business owner or employer considering furloughing employees and claiming under the scheme, or have already furloughed members of staff, it is strongly recommended you seek both employment and regulatory advice before making any claims on HMRC’s online portal. 

Getting advice early on, will not only ensure that you fully benefit financially from the scheme, but you are also totally aware of the consequences of flouting the scheme rules.

For further advice regarding the furloughed workers scheme, contact our specialist employment law and regulatory and compliance teams on 01772 258321.