HMRC has recently confirmed that up to £3.5 billion in Coronavirus Job Retention Scheme (CJRS) payments may have been claimed fraudulently or as a result of error and confirmed that enquiries have been opened into 27,000 “high risk” cases.
On 7 September 2020, HMRC’s Chief Executive, Jim Harra, confirmed that HMRC are working on the assumption that between 5-10% of CJRS claims were paid out incorrectly. This includes all claims from employers who have not met the formal conditions of the scheme, ranging from instances of genuine error through to deliberate fraud.
The CJRS enables employers to claim a grant to cover a substantial portion of the wages of their workforce who remain on payroll, but who are not working- referred to as furloughing. The latest data shows that approximately £35.4 billion has been claimed through the scheme since its introduction in March 2020, supporting approximately 1.2 million employers and 9.6 million furlough jobs.
Given the scale of the scheme and the haste in which the first payments needed to be made, the CJRS has long been considered a minefield for errors and a tempting target for abuse. But how might HMRC determine an “error” from “fraud” in their investigations approach?
HMRC have been helped in identifying potentially fraudulent claims by over 8,000 whistleblower reports, meaning HMRC can deploy faster than they otherwise usually would, although it should be borne in mind that the quality of information from such a source can be varied and unreliable. That said, HMRC have begun enquiries into some 27,000 “high-risk” cases, which are likely to be cases where HMRC suspect a claim is fraudulent, for example where:
- employees have been asked to work whilst on furlough;
- claims have been made for employees who were never aware of being furloughed or even for non-employees, such as people who have been made redundant; or
- claims have been artificially inflated in some way.
Initial enquiries are being pursued by writing to employers to notify them that HMRC have concerns about payments made to them under CJRS and asking them to engage with HMRC to correct their claims. It is understood that HMRC are contacting up to 3,000 employers each week in this way. For those employers who do not engage with the correction requests, HMRC will begin one-to-one investigations.
Where there are grounds to suspect fraud with respect to the CJRS, HMRC will usually take more immediate and serious action, with prosecution firmly in its mind. HMRC announced their first “furlough fraud” arrest in July 2020, when an individual was arrested for a suspected £495,000 CJRS fraud as well as other fraud and money laundering offences. HMRC clearly hoped the arrest would make a statement of intent, noting at the time that they “will not hesitate to act on reports of abuse”
It is evident that HMRC will continue to use the prosecution route to reinforce its strong message of intent and demonstrate to the taxpayer that CJRS fraud will be punished heavily.
As the pressure on the UK Government increases to close the tax gap, it is clear that even businesses that acted in good faith may be caught by HMRC enforcement action. Although Mr Harra confirmed that HMRC’s current strategy is not to target such employers, the Prime Minister’s spokesperson clarified on 8 September that HMRC still expect employers to identify mistakes and seek to correct their claims where genuine mistakes have occurred.
To that end, the Finance Act 2020 introduced new measures to ensure that CJRS payments (and other COVID-19 support payments) can be clawed back where they were not properly due (even if as a result of genuine error) and an “amnesty” window for those who identify, and voluntarily disclose, an error in their CJRS claims. If an employer notifies HMRC by no later than 20 October 2020 of an error in its CJRS claims, the employer will be able to repay the financial support received without sanction or penalty.
Ominously, if the error is later discovered, a penalty of up to 100% of the CJRS payment may be imposed on those who knew that they were not entitled to the payment on the basis that their wrongdoing was “deliberate and concealed”. This would be in addition to the recovery of the CJRS payment.
The combination of recent announcements by the Government and the “amnesty” window offer a short window of opportunity for businesses that have made errors in their CJRS claims.
Those who have received payments under the CJRS should take this opportunity to pre-empt any HMRC investigation and review their own position. This applies to all businesses, even those that think they have acted in good faith. HMRC’s starting assumption is likely to be that all errors were made knowingly and so the evidence gathered in the internal investigation would help in pushing back against that assumption in case HMRC decide to start their own enquiries.
Please contact us if you have any concerns with regard to your CJRS claim.