Directors and Furlough Fraud

HMRC has warned it will impose penalties on directors who have committed furlough fraud.

HMRC have recently published  legislation to use their information and inspection powers to check Self-Employment Income Support Scheme (SEISS) or Coronavirus Job Retention Scheme (CJRS). Checking claims have not been overpaid, and that CJRS payments have actually been used to pay furloughed employee costs and not used for other purposes.

Time Frames for Investigations

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. This is stated 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. This is including the SEISS and CJRS, which the claimant was not entitled to.  HMRC will also be able to charge a penalty. This will be 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. Adding a fine for this behaviour.

It appears that furlough fraud is more prevalent than previously thought. HMRC figures show that reports to its digital reporting service, was over double the number of reports predicted.

There are 3 Main Suspected types of Furlough Fraud Identified:

  • A company furloughed staff but asked them to continue to work or volunteer unpaid
  • Companies furloughed staff without telling them. The workers only find out when they are paid
  • A company claimed furlough money for a “ghost” employee who may be someone they dismissed or “recruited” so they could claim the money.

Limited Companies

Worryingly, for many boards of limited companies, in relation to furlough fraud, these changes will give HMRC further powers. These powers will be to make a company officer jointly, and severally liable for the Income Tax charge raised in relation to any CJRS payment. This payment to which the company was not entitled. Also, for any CJRC payment which was 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 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 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.