The scale of HMRC's task
Latest figures show that HMRC paid out £70 billion in Coronavirus Job Retention Scheme ("CJRS") claims. It is estimated that almost £6 billion worth of payments have been made as a result of fraud or error. The scale of HMRC's roll out of the support scheme was unprecedented, and there now follows the clean-up exercise, and there are steps that businesses can take now to mitigate the impact of any investigation.
In March 2021, the Government announced a further £100 million in funding to expand the scope of HMRC's compliance work, and we saw the establishment of a new Taxpayer Protection Taskforce. HMRC recently published that it has allocated 1,200 people to its team to investigate incorrect and fraudulent claims, and will focus on recovering funds. HMRC has indicated it will open 30,000 enquiries and look to recover £1 billion in the next two years.
What do we know about the investigations?
Given the scale of the operations, we understand that HMRC has drafted in staff from other areas, who aren't as experienced in dealing with employment tax matters. This has led to investigations not being as focussed as they would ordinarily have been, taking up additional time and resource for businesses under investigation.
Although the full outcome of the investigations are yet to be reported, large employers with an HMRC relationship manager or compliance department in situ will undoubtedly find it easier to manage the scope of any investigation. Small employers are likely to be at a natural disadvantage when it comes to an investigation of this nature due to their lack of compliance related support.
What can be done?
Investigations can be time intensive and stressful, taking away focus and energy from the important task of rebuilding business operations following an incredibly challenging period. There are practical steps that businesses can be taking now to mitigate the impact of an HMRC investigation:
- Be prepared – ensure you have all the relevant paperwork. It is likely that any investigation would involve a random sample of furlough claims to be investigated. Ensuring you have the relevant documentation in order will inevitably put the business in a stronger position. HMRC will want to see everything from furlough agreements (including any variations or updates) to payslips and contracts of employment detailing salary entitlements.
- Keep investigations focussed and tightly drawn – limit the resource spent providing numerous documents. Where possible allocate specific tasks to a team of people with the best matched skillset and experience for an investigation of this type.
- Legal privilege – don't forget the benefit of legally privileged advice. Only your legal advisers can offer this and it can be an important tool when considering responding to HMRC requests.
What are the consequences of furlough fraud?
HMRC has wide ranging powers, from auditing and clawback of abusive claims, to penalties for failing to report an overpayment, to criminal investigations. If a business does not notify HMRC of a furlough grant it overclaimed, it will be deemed a ‘deliberate and concealed’ activity, which can lead to a penalty which is 100% repayment of the grant. Companies and their office holders may also be exposed to liability where there has been a fraudulent claim under both the Finance Act 2020 and the Criminal Finances Act 2017.
There have been a number of arrests for furlough fraud with the first one hitting the headlines in July 2020. With the resource HMRC has put into these enquiries, we will undoubtedly see more criminal investigations.
If you would like to discuss how one of our experts can help with the issues raised in this article, please get in touch with the contacts named below.
