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Furlough Fraud

The window for self-reporting furlough mistakes in relation to the Coronavirus Job Retention Scheme (CJRS)  came to an end on 20 October 2020.

Since it was introduced in March 2020, the CJRS has served as a lifeline for employers and over £31 billion has been claimed from the Government so far.

As the number of claims increased, the issue of furlough fraud has become more prevalent. It is now understood that up to £3.6 billion has been claimed fraudulently by employers throughout the UK. To combat the anticipated rise in fraudulent claims, the recently introduced Finance Act 2020 gave HMRC new powers to investigate furlough fraud by auditing claims made through the scheme. Where errors are discovered, not only can HMRC order those in question to repay any incorrectly claimed sums but also impose fines and other penalties.

HMRC is increasingly penalising employers who it believes have committed ‘furlough fraud’. It has already contacted around 27,000 employers whom it believes have claimed too much, is actively taking enforcement action and the first furlough fraud arrests have been made. HMRC are reportedly currently actively investigating around 11,000 businesses for suspected furlough fraud.

The Finance Act granted employers a 90-day grace period for reviewing their compliance with the CJRS. If employers self-reported any issues to HMRC during this period and took appropriate action to rectify any errors before the cut-off date (20 October 2020), they should avoid potentially significant penalties or fines.

Now that this date has passed HMRC investigations could result in the financial penalties outlined above. As a result, we strongly recommend that employers proactively undertake an audit of their CJRS claims in order to ascertain whether mistakes have occurred. This information will enable employers to fully and comprehensively respond to any HMRC investigations.

To date the scheme has been notoriously difficult to navigate, due to rapidly changing and often unclear guidance. There are a range of key issues that employers needed to watch out for including employees working while receiving furlough pay, improperly documented furlough arrangements and incorrectly made claims relating to commission, bonuses, overtime, holiday pay or notice pay.

As there are so many complex issues at play, and potentially significant financial penalties, it is wise to enlist expert assistance when dealing with furlough fraud. Our Employment Team is highly experienced on advising clients on furlough fraud, and we also provide a full audit service allowing you to ensure you fulfil your legal requirements as an employer.

If you receive a letter from HMRC or find yourself facing an HMRC inspection, we can advise how to respond, and guide you through any inspection process including, where appropriate, making representations on your behalf, defending any allegations and challenging any penalties.

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Furlough Fraud – FAQs

  • What should employers be doing?

    The grace period for self-reporting has ended and employers should expect, and be ready for, scrutiny. HMRC audits in respect of the CJRS and its usage have begun, and we are working with clients to assist with investigations, protect their position and minimise business disruption. We are providing this specialist support to clients in the context of a  scheme which has been notoriously difficult to navigate and subject to frequent change..

    Further, as employers analyse their business and its balance sheets in order to survive the pandemic and its aftereffects many will be thinking about restructuring and, potentially, making redundancies. Employers should be aware that we have been alerted that some employees are using allegations of furlough fraud as leverage where employees are being considered for or being made redundant often in the hope it will bolster any pay-out. Employers should proceed with care in such circumstances and a proactive transparent approach to auditing should help to alleviate this issue.

    In particular we recommend that all employers:

    • Expect HMRC scrutiny
    • Proactively plan, with specialist assistance, an audit of all previous CJRS claims
    • Retain all relevant records for at least six years as required by HMRC

    If you have any concerns regarding the furlough scheme, your use of the scheme or have had communication from HMRC then we encourage you to get in touch as soon as possible, a member of the Brabners employment team will be happy to help.

  • What constitutes furlough fraud?

    The following are examples of what could constitute furlough fraud:

    • Having employees work whilst furloughed even for a nominal period of time
    • Not communicating to employees that they have been furloughed
    • Claiming for employees who do not qualify for the CJRS
    • Claiming for employees that have left or do not actually exist (ghost employees)
    • Inflating employees’ salary to claim more

  • What are the HMRC powers?

    Following the enactment of the Finance Act 2020, HMRC have extensive enforcement powers to deal with any abuse of the CJRS and they have generic information and inspection powers that can be used to audit CJRS claims.

    Where mistakes are discovered, not only do the over claimed sums have to be repaid, HMRC can also impose a penalty charge on those who received a CJRS grant to which they are not fully entitled and/or improperly used the funds.

    This charge will be equal to the value of the grant that has been incorrectly claimed or used.

    Notably, in serious cases of fraud and specifically where a deliberate penalty has been charged, HMRC may publish details of the deliberate defaulter online for up to 12 months, which would bring with it a real risk of reputational damage.

    If a company is insolvent and HMRC cannot recover the tax, directors may be held personally liable if the director knew of the wrongful claim.

  • What are the criminal sanctions?

    Criminal sanctions are available, and individuals could be investigated and prosecuted for a number of serious offences:

    • Fraud by false representation
    • Fraud by abuse of position
    • Conspiracy to defraud
    • Cheating the public revenue
    • Money laundering

    Corporates may be investigated for failing to prevent facilitation of tax evasion under the Criminal Finances Act 2017.

  • How can we help?

    Since the introduction of the CJRS we have been advising clients in relation to the ever-changing guidance and are well placed to assist employers with a detailed audit of their claims and documentation.

    We are also able to assist employers who identify mistakes with their claim, both in terms of disclosing this to HMRC and also responding to any official investigation. 

    For assistance please call our helpline on 03330 433230 or contact your usual Brabners Employment team contact.

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