Furlough fraud and other errors in coronavirus support claims: last chance saloon
In recent weeks, HMRC have made clear that they will clamp down hard on abuse of the furlough scheme and other coronavirus support measures. The passing of the Finance Act 2020 last week now gives employers a 90-day window to notify HMRC of any errors (whether deliberate or inadvertent). Businesses should therefore review their furlough claims now to mitigate the risk of an HMRC investigation in future.
Criminal investigations
The various coronavirus support measures were introduced on a "pay now, check later" basis. It has become clear that the schemes have been abused by some, and HMRC have been keen to send a clear message that fraud will not be tolerated. HMRC will open criminal investigations where they consider it appropriate and their first arrest has already been reported. There is also an online portal for people to report furlough fraud and other such abuse; it can be assumed that any such report will be important evidence in any consequent investigation.
A criminal investigation by HMRC presents serious risks for any business (including potential adverse publicity). In reality, however, it seems likely that criminal investigations will be reserved for a (perhaps significant) minority of particularly serious cases.
Civil enquiries and new HMRC powers
In addition to their criminal powers, HMRC have been given significant new powers to deal with errors in furlough claims as a civil matter. The Finance Act 2020 (which was enacted last week) contains new legislation providing that that where a business has received a furlough payment to which it was not entitled, this will be taxed at a rate of 100% (regardless of whether the original error was deliberate or accidental). This effectively allows wrongly-claimed furlough payments to be recovered as tax through the tax system, subject to HMRC's usual administration, collection and enforcement powers. HMRC will be able to use their formal information powers to compel businesses to provide information about incorrect claims. And in certain circumstances, HMRC will have the power to recover the tax from directors and other office-holders where the company is insolvent.
Importantly, the new legislation places a legal obligation on an employer to notify HMRC of any claims to which it was not entitled. There is a 90-day window for doing this (starting, broadly, from the later of 22 July and the day the furlough payment was made). There is a level of recognition by HMRC that in these extraordinary circumstances, errors may have been made. However, any failure to notify now has serious consequences, particularly where the employer knew at the time of the claim that it was not entitled to it. In such a case, the failure will be treated as "deliberate and concealed" for penalty purposes. This could give rise to a penalty of up to 100% of the amount wrongly claimed (in addition to the liability to repay the amount itself). It may also result in businesses being included on HMRC's publicly-available list of "deliberate tax defaulters".
Summary
It is of course acknowledged that businesses have a lot on their plate at present. However, this issue should not be overlooked. The 90-day window is an opportunity for employers to get on the front foot and pre-empt any future HMRC investigation. The clock is ticking however, particularly in light of the serious penalties for non-compliance. All businesses would be advised to review their furlough and other coronavirus support claims as soon as possible. If any errors are identified or suspected, appropriate advice should be taken and if necessary a disclosure should be made to HMRC. A proactive approach to this issue will be of real benefit in the long run.
