HM Revenue and Customs (HMRC) have announced that companies who have committed ‘furlough fraud’ now have 90 instead of 30 days to confess what they have done, as there is a belief that businesses that have taken advantage of the scheme have done so accidentally.
This amnesty has been introduced via the Finance Bill which received royal assent on 22/07/20. There has been a rise in the amount of ‘furlough fraud’ reported but professionals are questioning whether all these cases were done intentionally.
Matthew Sharp, senior associate at law firm Fieldfisher believes that due to the lack of understanding surrounding the furlough scheme, employers were likely to make mistakes. Mr Sharp said:
If we go back to when the furlough scheme was first launched, employers were encouraged to make use of this ‘pay now’ scheme to prevent mass redundancies. However, the ‘check later’ element and what HMRC enforcement would look like was never really clarified.
As the ‘check later’ portion of the furlough scheme becomes the new focus for the Government, we are likely to see more reports of furlough fraud as employers start to increase checks to ensure they were compliant.
HMRC received 6,749 reports of ‘furlough fraud’ as of 22/07/20 which is up from 4,400 at the end of June.
Still, there are businesses that have committed fraud on purpose. As Andy Wallis, partner in the corporate tax team at Kreston Reeves a business and financial advisers firm said:
The Coronavirus Job Retention Scheme has been a lifeline for many businesses, yet there is increasing evidence that it is being abused, for example, by employers asking staff to work whilst on furlough. Whilst it is clear that this is wrong, businesses may easily find that they have inadvertently breached the rules as little guidance was available when the first claims were being submitted.
HMRC has a duty to investigate where it believes fraudulent activity is happening, so it is not surprising that investigations are already underway.
The Finance Act introduces a 90-day amnesty that puts the onus on businesses to notify HMRC of any overclaim. Businesses that do not notify will be treated as deliberately concealing overpayments from HMRC and can attract penalties of up to 100% of the amount overclaimed.
HMRC is sending a clear message to businesses – take advantage of this amnesty or face investigation. It is clear that HMRC hopes its amnesty will raise significant revenues.
It is vitally important that businesses keep good and clear records of staff on furlough, particularly as it is now possible to allow staff to return part-time. Businesses should also be able to demonstrate clear communication to staff on furlough that explains the rules.