HMRC given further regulatory powers to investigate CRJS furlough fraud

David Edwards, head of Harrison Drury’s regulatory and compliance team, takes a look at how HMRC intends to follow up fraudulent claims made against its scheme designed to protect the workforce during the coronavirus pandemic.

As of August 2020, the Coronavirus Job Retention Scheme (CRJS) has reported to have cost up to £30bn. Whilst the majority of businesses relying on this support will have done so genuinely and in accordance with the requirements of the scheme, it is clear to HMRC that there are many who haven’t. As the scheme has already cost the taxpayer a huge amount of money, HMRC is investigating more and more instances of allegedly fraudulent claims.

On the 15 April, 2020, we published an article to warn employers not to flout the scheme ‘CJRS – warning against fraudulent claims’ and as we initially warned, HMRC is looking to act upon fraudulent claims.

It is worth reinforcing the point that directors of companies can be found to be criminally liable in instances where furloughed employees have undertaken work for their employee during the period of time that claims were made under the CJRS (and contrary to the clear rules of the scheme). This will even stand, if a director was unaware of such work being undertaken, as due to their position and level of responsibility, they ought to have known.

In addition, HMRC may also have the power to make an officer of a company jointly and severally liable where the officer for example, a company secretary, deliberately and knowingly made and/or contributed a claim which shouldn’t have been made. The point to be made is that it’s not just company directors who may face criminal liability and other sanctions.

Retrospective audits

The CJRS guidance makes it clear that HMRC retains the right to retrospectively audit all aspects of an employer’s claim. Our employment team has also produced various articles stressing the importance of having an audit trail for all claims, both in terms of demonstrating any decision making, and general compliance with the rules of the scheme.

It is reckoned that over 30% of employees supported by the scheme have been actively working for their employers during the time, at the employer’s request, when they shouldn’t have been.

HMRC now operates a fraud reporting tool on its website, making it easy for fraud reports to be brought to their attention and encourages people to come forward and confidentially report fraudulent claims. The tool invites reporting not only in respect of the CJRS, but also the Self-Employment Income Support Scheme and Eat Out to Help Out Scheme.

HMRC is also operating a fraud telephone hotline.

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.

Further penalties under the Finance Act 2020

We would also draw attention to the Finance Act 2020 (which is now law). The act applies to any individual/s, businesses, partnerships and employers which have received or applied for payments (whenever made) under the following schemes:

• Self-Employment Income Support Scheme (SEISS)
• Small Business Grant Fund (SBGF), the Retail, Hospitality and Leisure Grant Fund (RHLGF), the Discretionary Grant Fund (DGF)
• Other payments made by public authorities to businesses in response to COVID-19

The new powers under the act provide HMRC with an arsenal of various civil penalties. These include being able to levy up to 100 per cent tax on furlough payments which were wrongly claimed (whether claimed deliberately, or in error), and the ability to make an officer of a company personally liable for some portion of the company’s penalty in circumstances where the penalty has been imposed in light of a deliberate act of that person, or simply a failure which can be attributed to that individual.

Importantly, the new legislation places a legal obligation upon businesses to notify the HMRC of payments which were wrongly claimed (whatever the circumstances were).

Thus, a critical differentiation has now been drawn – whereas HMRC might show tolerance to businesses which have incorrectly claimed, they will show much less tolerance to those businesses who have realised their mistake, and have failed to report the ‘over claim’.

We would also make the point that under this legislation, businesses which fail to notify an ‘over claim’ risk being recorded on the HMRC’s public list of tax defaulters. That may present any ‘listed’ business with serious financial and reputational implications.

Businesses have 90 days (from 22 July, 2020) in which to notify HMRC of an over claim. The clock is, therefore, ticking . . .

Should you wish to discuss any of the issues raised in this article or have concerns about your CJRS claims and furloughed employees, please contact David Edwards, director and head of Harrison Drury’s specialist regulatory and compliance team on 01772 258321.