REWARD
Furlough fraud penalties
Danny Done, managing director at Portfolio Payroll , outlines the issues and HMRC activities
A ccording to reports, the number of fraudulent claims has increased in recent months as exploitation of the coronavirus job retention scheme (‘the furlough scheme’) becomes a new government threat. For this reason, HM Revenue & Customs (HMRC) has announced the potential penalties that can be imposed on the employers that commit furlough fraud. The furlough scheme was put in place to support employers who were not able to operate as normal due to the pandemic. Since coming into force in March 2020, thousands of employers have furloughed all, or part, of their workforce and claimed 80% of employee wage costs, to a maximum of £2,500 per employee per month. Based on information from the experimental official statistics publication produced with HMRC’s furlough claims
Correcting errors to avoid furlough fraud On 1 July, HMRC updated its guidance on the furlough scheme to enable employers that have overclaimed through the scheme to either correct this error in their next claim or make a payment directly to HMRC if no future claims will be made. The government has emphasised that any overclaimed grant payments must be repaid and, as mentioned, one option is to repay it to HMRC in the next furlough claim. Employers should notify HMRC of the amount that has been overclaimed as an additional step to making a new furlough claim. Any new grant payments made to the employer will then reflect any deductions made due to previous overclaimed payments. Employers should keep records of this for six years. Arrests HMRC has confirmed that it has made the first arrests for furlough fraud, with one individual suspected of defrauding £495,000. A man from the West Midlands is said to have been arrested, alongside eight other men linked to the investigation. Company assets have also been seized, whilst bank accounts relating to the business have been frozen. This action from HMRC does seem to deliberately send a clear message to employers that furlough fraud will be investigated and, if proven, could result in criminal prosecution. If employers have underclaimed Employers that have miscalculated how much they needed to claim under the scheme, and are due to benefit more from it, can contact HMRC to amend the claim. Employers should note that HMRC has powers to perform additional checks if amendments on underclaimed grant payments are requested. n
if they did not know of the overpayment at the time it was received, or at the time that their circumstances changed, and if it is repaid within the following time period: companies will have until twelve months from when their accounting period ends to rectify errors, and sole traders or partners will have until 31 January 2022. Penalties Whilst errors can be rectified, failure to report this can incur penalties such as the following: ● income tax charge – full overclaimed amounts may be recovered if HMRC make a tax assessment for the amount overclaimed, for which payment of the assessed amount will be due thirty days after the assessment (otherwise interest will be charged on the tax from day 31) ● company officers can be made personally liable to pay the tax charged on overclaimed grants in the case of insolvency – if officers of the employer knew of the overclaimed grant, or tax incurred on the grant, but this cannot be recovered from the company ● 100% penalty for failing to notify HMRC, within the below notification period, that the employer is chargeable for income tax on an overclaimed furlough grant. Partners will be jointly and severally liable for any overclaimed grants repayable. If employers repay monies overclaimed this will prevent any potential tax liability relating to the overpayment of the grant. Notification of any overclaimed furlough grant payments need to be made within ninety days after receiving the overclaimed payment or after the day circumstances changed, or 20 October 2020.
data, the scheme has supported 9,600,000 employees thus far.
However, it is possible that some employers have overclaimed, some without even realising it, and may face penalties. Around 27,000 employers that may have overclaimed by mistake are being contacted by HMRC so that they may rectify any such errors. What ‘furlough fraud’ looks like The government has explained that the following actions constitute an overclaimed furlough grant, and thus could lead to furlough fraud: any amount the employer either was not entitled to receive or is no longer entitled to receive because the employee being claimed for no longer works for the employer. Employers will not be charged a penalty
...first arrests for furlough fraud, with one individual suspected of defrauding £495,000.
| Professional in Payroll, Pensions and Reward | October 2020 | Issue 64 38
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