The Furlough Scheme was introduced in March 2020 to support the economy during the COVID pandemic. Full-time workers or anyone on a PAYE basis could be furloughed, including people on flexible or zero-hour contracts. The original scheme allowed employers a grant to cover 80% of the wages of employees, capped at £2,500 per month. As with any scheme, it is open to fraud which has led to the term, ‘Furlough Fraud’.
The scheme allowed employees to be kept on the payroll, rather than being dismissed. Employees are unable to partake in work for that employer whilst under furlough. The furlough scheme or the Coronavirus Job Retention Scheme (CJRS) has proved a lifeline for many businesses. It is reported £27 billion of funding has already been claimed. It is due to come to an end on 30 September 2021.
You can read more about the Furlough scheme in one of our previous blogs.
The government were acutely aware the scheme would be open to fraud. The furlough scheme was implemented in a matter of weeks in an immediate response to the pandemic. Schemes like this usually take two years to implement. As a result, the rules are perhaps not as clear as other similar government schemes, so the potential for error and misinterpretation is greater. Furthermore, it has evolved over time with additional levels of complexity introduced.
Under the scheme, employees must do not any work for the employer or for any businesses that are associated with them. Employees can work for a different employee or volunteer in the community, with the caveat they are not creating revenue for the employer. The scheme also allowed for flexible working from 1st July 2020.
Examples of Furlough fraud occurs in a number of ways:
A number of measures were announced in the 2021 Budget to support the economy. Rishi Sunak also announced the introduction of a ‘Taxpayer Protection Taskforce’ with £100m of funding. The taskforce was introduced to allow HMRC to investigate people they believe to have made fraudulent claims under the scheme.
The establishment of the Taskforce reflected a growing concern from the HMRC of misuse of the scheme. The rules of the scheme are complex, especially around calculating pay entitlement. The government has made it clear that any misdemeanours will be rigorously investigated with penalties issues. It is reported 1,000 inspectors will be involved.
An example of the potential size of the issue is the recent arrest of a 57-year-old man in Solihull in February 2021. He was arrested on suspicion of involvement in a £0.5 million swindling of the Furlough Scheme. An additional 8 people have been arrested as part of the operation in the East Midlands.
There are a number of consequences that employers need to be aware of. These include:
As HMRC’s efforts ramp-up many employers will be wrongly accused. Furthermore, furlough fraud can happen accidentally by misinterpreting the law. Businesses are advised to understand the associated rules of the scheme and all the ongoing changes that have taken place. People responsible for payroll and the management of the scheme should spot check claims to make sure furloughed workers aren’t working. For flexible workers, they should only be working their reduced hours.
If you spot an error deal with it quickly and openly because mistakes could be perceived to be fraud if left undetected, especially if an employer knew of the error. HMRC has introduced a ‘quasi amnesty for employers to come forward and declare any errors. Employers must notify HMRC within 90 days of receiving the additional payment.
It is important that all employers who have made use of the scheme should make and keep a proper record. This will help answer the HMRC inspector’s question if needed. If you do receive a letter from HRMC, it’s imperative you take action. If you would like more information or help on this matter please contact Kinsella Tax. We are available at Kinsella Tax to offer advice on your Tax and VAT affairs. Call us on 0800 471 4546 or you can contact us here.