HMRC is investigating businesses that over claimed furlough payments, whether due to deliberate dishonesty or genuine mistakes. Those suspected of fraud will face greater repercussions, with criminal prosecutions reserved for the most serious of cases. Anyone concerned about an HMRC furlough investigation should contact our solicitors for a confidential discussion.
When the Covid-19 pandemic hit UK shores in March 2020, the UK government quickly set up the Coronavirus Job Retention Scheme – known more commonly as the furlough scheme. Billions of pounds were claimed by businesses over the course of 18 months. The payments were used to cover the wages of employees who had been given a temporary leave of absence.
Yet due to the hasty nature of the scheme’s inception, there were very few due diligence checks. Furthermore, HMRC’s guidance was open to interpretation, and was regularly revised as the months went by. This created confusion amongst employers who had a legitimate claim for furlough payments, but who had to rely on their own calculations and understanding of the criteria.
Fraud vs. genuine mistakes
Now, HMRC is estimating that at least £3 billion was fraudulently claimed under the furlough scheme. However, the legal definition of fraud is ‘deliberate dishonesty for the purpose of making a gain or causing a loss to someone else’. This is a serious criminal offence, and it is not one that will apply to most businesses who accidentally claimed larger payments that they were entitled to.
In fact, many employers may accept that genuine mistakes were made. This might be due to a miscalculation or misunderstanding. Other errors may also have been made, such as failing to declare furlough grants separately on their accounts, or including Employers National Insurance in a furlough claim, despite it not being payable. HMRC accepts that such errors may have been unintentional, and wishes to work with employers to recover the money.
That is why HMRC is strongly encouraging self-reporting. Initially, HMRC asked anyone who mistakenly overclaimed a furlough grant to report the issue within the notification period. This was 90 days after the date circumstances changed so that you were no longer entitled to keep the grant. Those who reported the problem within the notification period would avoid financial penalties.
The furlough scheme ended in September 2021. Even so, employers are still encouraged to come forward, if they realise that mistakes have been made. Once you contact HMRC and report an over-claim, an officer will likely be assigned to your case and an investigation carried out. This is to check how much money you should have received, compared to how much you did receive. The balance owing will be recovered from you, and you may also be given a penalty.
Are you worried about a mistake?
If you are concerned that you made an incorrect furlough grant claim, please contact us at Altion Law for advice. HMRC can misconstrue genuine errors as deliberate dishonesty. We can determine exactly how much you were entitled to receive in furlough grants, if any. If an overclaim was made, we can explain to HMRC why the errors occurred, liaising with them to find a mutually acceptable solution.
An expert analysis is often essential, especially where your interpretation of the scheme differs to HMRC’s. We can look at what went wrong and why.
What if you fail to disclose?
If you know that mistakes have been made regarding furlough payments and you do not tell HMRC, then the consequences will be more serious. HMRC can recover up to twice the initial claim plus interest, and impose a penalty. If you are charged a deliberate penalty because of an incorrect furlough grant, your details may be published as a ‘deliberate defaulter’. This can, of course, cause significant reputational damage. In serious cases, HMRC may choose to pursue a criminal prosecution.
HMRC Furlough Investigation
You might wonder how, exactly, HMRC would know that an over claim has been made. The answer is twofold.
Firstly, HMRC has opened a whistle-blower hotline. Tip-offs have been made by members of the public and employees, in turn prompting HMRC to investigate an employer more closely. Of course, not all these tip-offs are based on accurate information, and may even have a malicious motivation. Even so, an HMRC investigation may still ensue.
Secondly, HMRC has a dedicated task force of over 1,200 staff whose sole purpose is to uncover Covid-19 fraud. HMRC has sophisticated means of detecting fraud, with software cross-referencing huge amounts of data to check for anomalies. Inconsistencies will be flagged and further investigated by HMRC officers.
What happens during an HMRC Furlough Investigation?
HMRC conducts furlough investigations in different ways depending on the circumstances. Most commonly, we are seeing businesses being sent ‘letters of concern’. This indicates that HMRC believes a wrongful payment has been made and a compliance check is underway. You will be asked to provide extensive evidence that supports your claim for furlough, including:
- The names, addresses and NI numbers of your employees
- How furlough pay was calculated
- The hours normally worked by an employer and the number of hours spent on furlough
- Evidence that you paid the employee the amount claimed
HMRC often sets very tight deadlines, which may leave you very little time to gather all the information required. It is important to take note of this – if you fail to respond then HMRC may view it as non-cooperation. If you need more time, contact HMRC and explain the situation. Once HMRC has all the necessary information, it will determine whether you must repay a furlough grant. You may also be given a financial penalty for failing to disclose the error.
If HMRC has sent you a letter of concern, please contact us at Altion Law for expert legal advice. We can make representations to HMRC on your behalf.
Appealing HMRC’s decision
If you disagree with HMRC’s decision, or the amount due, then you can launch an appeal. You must do this within 30 days of HMRC’s decision letter. Again, this is something we can help you with.
HMRC Criminal Investigations
Where there are signs of blatant dishonesty, HMRC is likely to escalate its investigation to a criminal one. This might happen if, for example:
- Employees were placed on furlough but were still asked to work
- Fake employees were made up to increase payments
- Lies were told about the number of hours worked by an employee
- Employment contracts were faked or backdated
- Bogues companies were created
Criminal investigations will not necessarily start with a standard compliance check. HMRC can instead deploy their investigative powers, such as covert surveillance, search and seizures, and interviews under caution. HMRC have already made their first arrests relating to furlough fraud. As part of this, HMRC seized all computers and digital devices. They also froze the bank accounts relating to the individuals and the business.
I made a mistake, but it was an honest one
All this will be very worrying for any employer who made a mistake when claiming a furlough grant. However, it is vital to emphasise that businesses will be forgiven for making errors – so long as they can prove that they were honest ones. HMRC will only impose the full force of the law where fraud – in other words, deliberate dishonesty – has taken place.
We specialise in HMRC investigations, including those relating to furlough fraud and overclaims. If you are being investigated, or you think a mistake has been made but HMRC has not yet contacted you, please speak to us straightaway. We can determine the best approach to minimise the potential impact of an HMRC investigation.
Speak to our solicitors
Have you received an investigation letter from HMRC in relation to furlough fraud, or a furlough compliance investigation? Or are you worried that you may receive a letter in the near future? Altion Law offers an initial consultation service to discuss these concerns.
If you would like to have a free confidential discussion with a member of our team, please either make a Free Request For Call Back or call us directly on 01908 414990 and we will be pleased to help you.