Tax lawyers expect Her Majesty's Revenue & Customs (HMRC) to start up to 11,000 investigations into overclaims and fraud relating to the government's successful Job Retention Scheme from Tuesday 20th October. Up to £3.5bn of more than £35bn is believed to have been claimed in error or fraudulently.
The Job Retention Scheme enabled companies to furlough employees following the March Covid-19 lockdown, with the government paying 80 per cent of workers' wages up to £2,500 a month. It also covered employer’s National Insurance (NI) and pension contributions.
Law firm Osborne Clarke said that while the Chancellor of the Exchequer Rishi Sunak played a strong hand at HM Treasury, the CJRS was introduced in a rush to quickly deliver support to businesses as the lock down hit. The scheme however relied on guidance rather than clearly thought out legislation and so it was not always clear when employers were entitled to claim.
Jim Harra, chief executive of HMRC, in evidence to the Public Accounts Committee on 7 September 2020, estimated 5-10 per cent of the £35bn of CJRS claims were wrongly made. He also said that are now expecting to look into 27,000 high risk claims.
Three arrests have already been made for criminal fraud and HMRC is believed to be considering up to 11,000 "one-to-one" investigations which are likely to start immediately.
Ian Hyde, head of tax disputes, Osborne Clarke, commented: "If employers who have over claimed have missed this deadline, then for claims made at the outset of the crisis, they will be in breach of their duty to notify HMRC within 90 days of the mistake, exposing them to HMRC investigations and penalties. These penalties could be 100 per cent of the value of money claimed in error as well as repayment of the original funds money.
"If you have claimed money by mistake, even though the deadline has passed, you should still notify HMRC to mitigate any penalties due. Later claims may still be within the notice period and you should take action for those claims within 90 days."
"We anticipate that HMRC will not just consider prosecutions for the obvious small-time frauds, but will also consider all options including prosecution where larger businesses have deliberately applied for or kept grants knowing they are not entitled, for example by deliberately re-engaging staff during furlough."
HMRC made its first its first arrest in relation to furlough fraud in July. It is understood that the operation concerned a 57-year-old from the West Midlands, who was suspected of involvement in a £495,000 fraud on the CJRS. HMRC's actions included executing a search warrant, seizing digital devices, and freezing funds held in a bank account connected to the arrested man’s business. The individual was also arrested in relation to a suspected multi-million pound tax fraud and alleged money laundering offences. Two other arrests have also been made, a company director and an accountant.
A number of businesses in the UK have already repaid CJRS money where, for example, the expected downturn in business was not as great as initially feared and staff were brought back to work sooner than expected. Osborne Clarke was one of these companies and repaid its furlough money to HMRC on Friday 9th October.