Accountants and tax advisers have been warning companies of the perils of furlough abuse now that the so-called amnesty has begun.
The amnesty was introduced in the recent Finance Act which received Royal Assent on July 22. HMRC has already started investigating businesses it believes have deliberately or inadvertently allowed staff to work whilst on furlough.
The move puts the onus on businesses to notify HMRC of any over-claims. Businesses that do not notify will be treated as having deliberately concealed overpayments and can attract penalties of up to 100 per cent of the amount over-claimed.
And with the Latest statistics from the government showing that employers with 10-19 employees have the highest take-up rate of their furlough scheme, with 80 per cent employers of this size furloughing at least one employee, it’s not just the biggest companies that are likely to be scrutinised.
Andy Wallis, a Partner in the Corporate Tax team at Kreston Reeves described the Coronavirus Job Retention Scheme as “a lifeline for many businesses” but cautioned: “There is increasing evidence that it is being abused, for example, by employers asking staff to work whilst on furlough.
“Whilst it is clear that this is wrong, businesses may easily find that they have inadvertently breached the rules as little guidance was available when the first claims were being submitted.
“HMRC has a duty to investigate where it believes fraudulent activity is happening, so it is not surprising that investigations are already under way. It is sending a clear message to businesses – take advantage of this amnesty or face investigation. It is clear that HMRC hopes its amnesty will raise significant revenues.
“It is vitally important that businesses keep good and clear records of staff on furlough, particularly as it is now possible to allow staff to return part-time. Businesses should also be able to demonstrate clear communication to staff on furlough that explains the rules.”
Richard Morley, Partner in Tax Dispute Resolution at BDO said the royal ascent will mean a “gloves off” approach for HMRC to check up on any claim made and pursue incorrect claimants using both criminal and civil powers.
“This applies to both employers using the CJRS or furlough scheme, and the self-employed who applied under the SEISS – as well as those who received other direct support grants in error,” he said.
“Latest government statistics show the eye-watering numbers paid out and why HMRC resources will focus on this potential new area of fraud. Last week, HMRC announced that the total claimed was £26.5 billion at the end of June, representing an additional £9.0 billion in support claimed since the end of May.
“Given that HMRC has clearly started to actively follow up on tip-offs and potentially incorrect claims, including a recent arrest, businesses and individuals should start reviewing their furlough claims now.
“For those where HMRC suspects fraud, we can expect more in-depth investigations into not just the furlough/SEISS claims but also the wider business and personal affairs of the individuals involved. The legislation includes powers to pursue company office holders where businesses become insolvent, with joint and several liability.
“As well as following up whistle-blower reports, we expect HMRC to use its ‘Connect’ computer system to flag anomalies in claims, while looking at industry and sector norms. Anyone needing to make a disclosure of an incorrect claim should seek specialist professional advice without delay.”