HMRC’s fast-tracked plans to crackdown on furlough fraud

By David Bloom  |  18.06.2020

On 16 June 2020, Treasury figures revealed that £20.8 billion had been claimed on the government’s furlough scheme covering 9.1 million jobs. According to the Office for Budget Responsibility’s latest forecast, the entire scheme will cost £60 billion. HMRC is now gearing up to tackle fraudulent claims, having conceded that the scheme is “a magnet for fraudsters”.

The furlough scheme
Under the Coronavirus Job Retention Scheme, which now covers more than a quarter of the UK’s workforce, the government provides a grant to employers for 80% of a furloughed employees’ ‘reference salary’ up to £2,500 per month. Employers must furlough employees for a minimum of three weeks during which time the employee cannot undertake any work for the employer.

The scheme is tied to the Pay-As-You-Earn (PAYE) system and employers apply online and provide their employees’ names, National Insurance numbers and dates of employment.

A scheme open to abuse
The speed at which the scheme was announced and went live (on 20 April 2020) meant there was inevitable confusion for employers. HMRC has accepted that some employers may accidentally be committing furlough fraud, such as inviting employees back to do some work before their start date. During its first round of investigations, around one third of cases HMRC examined did not warrant further investigation.

There is no automatic trigger that would tell HMRC when someone was being asked to work while on furlough, or if the money had failed to reach the right account. One recent survey found that more than a third of furloughed employees have been asked by employers to carry out work whilst furloughed.

The scheme relies on honesty and whistleblowing. If an employee reports their employer to HMRC, the PAYE system could be cross-checked, and the employee could produce evidence showing they had been asked to work. The government has said that it received 1,868 whistleblowing claims of furlough fraud reports as of the end of May, more than double the 795 reports received by the middle of the month.

New proposals
Under draft legislation to be included in the Finance Bill 2020 and expected to gain Royal Assent in July 2020, any employer that uses furlough money for anything other than its intended purpose would face a financial penalty unless HMRC is notified within 30 days.

This is consistent with HMRC’s policy to deal with instances of suspected fraud where possible under the civil investigation procedures that incentivise cooperation, disclosure, and repayment where non-compliance with the tax regime has been identified.

The new proposals would give HMRC enhanced the power to check that grants made to employers through the scheme have been used correctly to pay furloughed workers’ wages, and to ensure employers have not been overpaid furlough reimbursements. The new measures would also allow HRMC to reclaim through income tax assessments any furlough money overpaid to employers or not spent on wages as intended.

There can be little doubt though that HMRC will swiftly open criminal investigations where claims do not appear to have been inadvertent and where monies are not swiftly repaid.

If you are suspected of misusing the furlough scheme, contact us without delay on 020 7481 9157.

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