Many employers have worked hard to keep their businesses afloat during the Coronavirus pandemic with a great many taking advantage of the Coronavirus Job Retention Scheme, where 80% of employees’ wages, up to £2,500 were initially met by the Government and with a sliding scale of contribution to the end of October 2020 when the scheme is currently designated to end.
Statistics show that more than nine million people were furloughed by 1.2 million different employers, costing the Treasury close to £35 billion. To expedite its implementation the Government arranged for the payments to be made through HM Revenue & Customs (HMRC) on a let’s pay now basis with the checks on the authenticity of claims to come later.
Sadly, some employers have taken the opportunity to make inflated or downright fraudulent claims and abused the system including claiming furlough pay yet blatantly breaching the rules and requiring their employees to continue to work. An HMRC fraud hotline has been set up for employees to report their employers anonymously in respect of this type of conduct.
However, given some anomalies in the scheme, especially with regard to what could be claimed and the terms of furlough, what constitutes training, qualifying periods and salaries, flexible working and other criteria, it is inevitable that some employers will have made genuine mistakes with their claims. This could be blamed in part due to the initial guidance being unclear and then being amended by frequent updates and changes.
What is very clear is that HMRC have now been given sweeping and far reaching new powers in the Finance Act 2020 to start checking up on businesses and where claims have been made wrongly for any reason, imposing hefty penalties, fines and taxes on them. They can do these checks for six years and if fraud is suspected, for 20 years!
Therefore, we urge all employers to check the furlough pay claims they have made to ensure these are correct before HMRC starts its clawback regime. This is because at the moment there is a sort of amnesty period for employers to correct mistakes, pay back monies wrongly claimed or fraudulently paid, without penalty.
HMRC has extended the time in which employers can correct any mistakes and amend their claims without incurring penalties. They have until 20th October 2020, which is 90 days after the Finance Act 2020 was passed, to amend their claims without penalty or 90 days after the day on which the income tax on the payment made becomes chargeable, whichever is the later. Initially it was 30 days, but this has been extended to give business the chance to comply.
Please click here to visit the Government’s latest guidance.
The Consequences of Overclaiming
HMRC has indicated that it will be auditing employers’ use of the Coronavirus Job Retention Scheme and that it will charge any figures overclaimed as tax due to it and worryingly it will also charge penalties of up to the same amount again. It appears this could be up to 200% of the sum wrongly claimed.
In addition to this, there is also the risk that HMRC will name and shame businesses who have overclaimed, resulting in some seriously bad publicity.
A further alarming new power for directors is that the new rules mean that directors of an insolvent business can also be held personally liable for incorrect claims made under the scheme.
Gill Brown, who is head of the Employment Law team at Phillips Solicitors incorporating Brain Chase Coles, strongly recommends that employers check their claims and if necessary, correct any errors before the time limit in October ends, as any miscalculations could be very costly.
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This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.