A year since the introduction of the Coronavirus Job Retention Scheme, or the 'furlough scheme' as it is more commonly known, the extent of fraud associated with the government assistance programme has started to become clear. Added to this, and increasing the pressure on the Government to act on furlough fraud where appropriate, the media has begun to scrutinise published lists of those that have made claims under the furlough scheme.
In this month's Budget, Chancellor Rishi Sunak announced the creation of the Taxpayer Protection Taskforce. The Government is investing £100 million in the deployment of a team of 1,265 HMRC officials to investigate individuals and companies who have exploited the various schemes designed to assist businesses and employees to withstand the COVID-19 pandemic. In addition, the Government will invest a further £180 million in 2021-22 in additional resources and new technology for HMRC, in part to recruit additional compliance staff to increase its ability to target non-compliance through "illicit financial flows", a move it anticipates will bring in over £1.6 billion of additional tax revenues by 2026. The number of investigations in relation to abuse of the pandemic support schemes can therefore be expected to ramp up, in addition to the 10,000 inquiries already opened by HMRC into suspected fraudulent activity.1
As of 15 February 2021, 11.2 million jobs had been supported by the furlough scheme and a total of 1.3 million employers had made a claim since March 2020, totalling £53.8 billion.2 HMRC has estimated that between 5 and 10% of furlough scheme claims paid out were the result of fraud or error. This currently equates to a sum of more than £5 billion.3 As of January 2021, HMRC had received over 21,000 reports of potential furlough fraud, a marked increase on the almost 8,000 reports received as of August 2020.4 The majority of these claims related to employees being made to work while their employers claimed for them as furloughed staff, with surveys estimating that up to 34% of employees were in this position.5
The circumstances surrounding the implementation of the furlough scheme made it ripe for exploitation. The Treasury and HMRC prioritised providing swift financial support to protect jobs and businesses, thereby accepting a greater level of risk, with the aim of making payments to applicants within six working days hindering HMRC's ability to carry out pre-payment checks.6
Once the Taxpayer Protection Taskforce gets to work, employers who have fraudulently claimed under the furlough scheme will start to face the music. HMRC has already published a list of around 750,000 employers who made claims under the furlough scheme in an effort to foster transparency and dissuade further abuse of the relief, including information about the value of the claims made within a banded range.7 However, HMRC plans to go one step further and name and shame "deliberate defaulters" who have deliberately over-claimed furlough relief.8 The reputational consequences to companies could be significant, given those details would remain online for 12 months after publication.9
In fact, the media has already begun to do soscrutinise published lists itself. The Guardian cross-referenced HMRC's list of claimants with the beneficial ownership data of those companies held by Companies House, and has reported that millions of pounds have been provided to businesses beneficially owned by foreign states and billionaire tax exiles.10 Media scrutiny will add to pressure for the Government to be seen to be identifying and taking action against furlough fraud where appropriate.
HMRC is giving employers some leeway to report excessive claims, noting that it is not seeking to punish mistakes in compliance, but rather to tackle deliberate non-compliance:
- Where HMRC discovers the excessive claim, it will not impose financial penalties if an employer did not know they had overclaimed furlough relief either at the time they received it, or when their circumstances changed and they stopped being entitled to it – as long as it is paid back within the relevant time period, which for sole traders and partnerships is by 31 January 2022 and for companies is within 12 months of the end of their accounting period.
- Where employers are aware they have claimed too much relief, or would like to make a voluntary repayment because the grant is no longer wanted or needed, they can either correct it in their next claim or get a payment reference number and repay HMRC within 30 days.
- Where employers are aware that they have claimed too much relief and have not repaid the grant, they must notify HMRC within 90 days of the date they received the grant to which they were not entitled, or within 90 days of the date they received the grant to which they were no longer entitled because their circumstances had changed. Failure to do so means HMRC treats this action as "deliberate and concealed", and can charge a penalty of up to 100% of the amount of the grant.
As of October 2020, companies had already voluntarily repaid £278 million to HMRC for furlough scheme payments they did not need or took in error. At the same point in time, HMRC estimated it could recover £275 million on furlough overpayments that it estimated were at a high risk of fraud,11 a figure that is likely to have increased.
The creation of the Taxpayer Protection Taskforce implies that the Government is planning to be robust in its investigation of offenders in an effort to recoup as much wrongly disseminated relief as possible.
Employers should be on notice and should review their use of the furlough scheme to ensure that they were legitimately claiming relief. In the event that they did not, companies should take into account the notification periods above in an effort to avoid penalties or prosecution – although legal advice should be sought where there are concerns that an employer may have exposed themselves to enforcement action.