Rising reports of furlough fraud could have major financial ramifications for businesses as they come further under HMRC’s spotlight, according to regulatory legal experts.
This follows a statement by Jim Harra, the top civil servant at HMRC, who told MPs on the Public Accounts Committee that his staff believe between 5-10 per cent of the £35.4 billion so far paid out might have “gone to the wrong place”.
In other words somewhere between £1.75 billion and £3.5 billion could have been paid out wrongly. This will range from deliberate fraud to error – and, as a result, HMRC is reviewing 27,000 ‘high risk’ cases.
The costs of the government’s job retention scheme are mounting. As of August 9, approximately 9.6 million jobs had been furloughed and the estimated total costs of the scheme are likely to be around £80 billion.
There is now inevitably pressure on HMRC to recover as much as possible and they are encouraging employees to report employers for abuse of the scheme.
With the scheme winding down and redundancies on the rise, there has been a surge in reports in the past few weeks. HMRC has reportedly received nearly 8,000 reports of furlough fraud and the whistleblowing charity Protect has reported a significant increase in calls to its advice line.
The situation is compounded by some employees resisting their own redundancy by alleging that they have completed work during furlough and so their role simply cannot be redundant. Even if these instances are simply untrue, the allegation must be investigated, and the next steps properly considered.
Sarah Wallace, Financial Crime and Regulatory partner at Constantine Law, said: “The CJRS is unequivocal in its guidance that furloughed employees must not do any work for or on behalf of their employer whilst on furlough.
“Whether deliberate or inadvertent, there are numerous ways in which an individual or an organisation may find that they have failed to meet this requirement, and HMRC is now ready to act.
criminal fraud aside, any shining of the HMRC spotlight could well have negative repercussions for businesses as they struggle to get back to some sort of normality
“Whether or not that failure amounts to criminal behaviour, or furlough fraud, will be determined by the intention of those at the time of the failure, specifically, whether the conduct was deliberate and whether there was any dishonesty involved.”
“But criminal fraud aside, any shining of the HMRC spotlight could well have negative repercussions for businesses as they struggle to get back to some sort of normality after Lockdown.”
Following the Finance Act 2020 passed in July, HMRC now has extensive enforcements powers to deal with abuse of the CJRS to enable the recovery of payments made to those who were not entitled to make claims and/or receive such payments.
HMRC is able to issue an assessment and impose an income tax liability on anyone who has incorrectly received payment under the scheme, equivalent to a 100 per cent of the inaccurately claimed cCronavirus support payments.
And where a business is no longer operating due to insolvency or insolvency is anticipated, HMRC also has the power to hold company officers accountable where any deliberate claims have been made or any grants retained which the company was not eligible to receive.