HMRC have confirmed they intend to investigate furlough fraud and other misuses of government provided covid support programs. Recently published draft legislation shows HMRC intend to use their information and inspection powers to check Self-Employment Income Support Scheme (SEISS) or Coronavirus Job Retention Scheme (CJRS) claims have not been overpaid and that CJRS payments have actually been used to pay furloughed employee costs and not used for other purposes.
HMRC will need to make changes to IT systems and internal processes to enable this change. This means that any investigations are likely to take place some months or even possibly years in the future. As many companies will only retain some key documents for 6 years. If you are ‘relying’ on some documents e.g. the notes of a call you had with an external HR advisor, these documents are likely to be outside your normal retention policy, so businesses will need to consider if these need to be retained, as directors could be investigated any time within 6 years by HMRC.
HMRC has outlined it will raise assessments to recover payments companies or self-employed individuals receive from government covid support schemes, including the SEISS and CJRS, which the claimant was not entitled to. HMRC will also be able to charge a penalty, if it is found the SEISS and CJRS furlough payments were deliberately made incorrectly, or where it is found that CJRS furlough payments are not used for paying employees. Essentially, this means HMRC intend to pursue companies and individuals to recoup any incorrectly claimed or misused government funds, and will then add a fine for this behaviour.
It appears that furlough fraud is more prevalent than previously thought, as HMRC figures show 1,868 reports to its digital reporting service were over double the number of reports 2 weeks previously on 12 May.
There are 3 main suspected types of furlough fraud identified:
- A company furloughs staff but asks them to continue to work or volunteer unpaid
- The company furloughs staff without telling them. The workers only find out when they are paid
- A company claims furlough money for a “ghost” employee who may be someone they dismissed or “recruited” so they could claim the money
Worryingly, for many boards of limited companies, in relation to furlough fraud, these changes will give HMRC powers to make a company officer jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled, or for any CJRC payment, where this was claims but never intended to be used to pay furloughed employee costs in certain circumstances.
Those circumstances are where an officer is culpable for making a deliberate CJRS claim to which the company was not entitled. These powers will apply where HMRC can meet certain tests showing there is a serious risk that the company will be unable pay the Income Tax assessment.
Altion Law are experts at dealing with HMRC Tax Investigations. If you are concerned about furlough fraud or any claims you have made under any government covid support scheme and would like to have a 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.