HMRC to tackle CJRS fraud, but funds could already be lost

HMRC to tackle CJRS fraud, but funds could already be lost

HMRC’s draft legislation shows ambition to tackle furlough scheme frauds – but money overpaid to employers will likely be difficult to regain

HMRC to tackle CJRS fraud, but funds could already be lost

New measures are being put into place to tackle abuse of the government’s wrongdoing of the Coronavirus Job Retention Scheme (CJRS) scheme.

On May 29, HMRC released draft legislation aimed at penalising abuse of the government support, in which a consultation of the draft ended Friday. The legislation will introduce a 30-day window of opportunity for businesses to ‘confess’ of any errors or deliberate abuse.

After this period, HMRC is expected to use its existing powers to recover overpayments and penalise fraudsters.

Jim Harra, first permanent secretary and chief executive of HMRC, said at a public accounts committee on Wednesday, that the furlough scheme was a “magnet for fraudsters,” but tipoffs were taken “very seriously.”

From April 1 to June 2, HMRC received over 2,000 claims of abuse of the CJRS, in which nearly 900 have been reviewed – two-thirds of which have had action brought against them, said Harra.

Adam Kay, partner in the corporate tax team at Saffery Champness, says the firm received little direction from HMRC regarding smaller claimants.

“We have done well over 200 furlough claims for our clients and we have only received a handful of phone calls from HMRC to check them and all of the ones we’ve received were phone calls about claims over £100,000. We’ve received absolutely nothing from HMRC in respect to smaller claims.”

Angie Crush, partner in the employment department at law firm Thomas Mansfield, says HMRC will need to distinguish incompetent employers from fraudulent ones by identifying the timeframe of their CJRS claims.

“One of the difficulties is that when the scheme initially came out, there were a lot of questions – even our employment lawyers were logging in our webinars and looking for guidance constantly to see if it’s been updated because there were a lot of unanswered questions. It’s gradually become more and more clear what employers can and can’t do,” she says.

“The starting point will be looking at what guidance and what questions and answers were available at the date the employer made the claim. That would be more of an incompetent use of the scheme.”

Some companies have asked employees to work whilst on furlough – considered a breach of the rules and deliberate abuse, says Crush.

“It seems that some employers have continued to ask people to do work for them. I imagine it is those employers that the government will be really keen to clamp on because that was crystal clear from day one.”

HMRC is likely to be “sympathetic” to the “innocent mistakes” carried out by employers, says Dawn Register, partner in tax dispute resolution at BDO, but “for those that have deliberately set out to abuse the system, they [HMRC] will be extremely harsh – they might even be some criminal action against the worst cases.”

While HMRC is eager to recover overpayments, accessing the money given to fraudsters will be a difficult task, says Register.

“Working on these inquiries in lockdown is a challenge because often they will want to do a site visit or a meeting. The other thing is collecting money, where possibly the money has already disappeared or been spent. Being able to get that money back is going to be very challenging. We do expect a lot of businesses will go bust, so the money won’t be there for HMRC – it would have gone,” she says.

“If someone is prepared to falsify records and names, then they’re not going to just sit there holding onto the money because they know they’ve done something that’s illegal,” says Kay.

Although the 30-day window of opportunity is a “positive” approach by HMRC, Kay doubts “how effective that might be changing behaviours.”

Register says a longer period could have been more effective in tackling the fraudulent claims.

“I personally think it’s too short,” she says. “It would have been possibility better to have a longer period – even 60 or 90 days. Maybe HMRC are in a rush to get it right or because the money might disappear.”

HMRC has appealed to workers to report employers that are abusing the scheme.

“The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. This is taxpayer’s money and fraudulent claims limit our ability to support people and deprive public services of essential funding,” said a spokesperson from HMRC, via email. “We won’t hesitate to take criminal action against the most serious cases.”

Resources & Whitepapers

How to optimise your compliance lifecycle

How to optimise your compliance lifecycle

12m
The new rules of accounting

The new rules of accounting

1y
5 ways internal productivity can boost your profitability

5 ways internal productivity can boost your profitability

1y
Crushing the Four Barriers to Growth

Crushing the Four Barriers to Growth

1y