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Since the launch of the Coronavirus Job Retention Scheme (CJRS) in March, it is estimated to have cost the government more than £25 billion. With the extension of the scheme to October, this cost is set to rise further still. It is therefore unsurprising that HMRC will take a dim view of employers making claims that they are not entitled to. The government has always been clear that payments made under the hastily rolled out scheme will be audited and it is vital that businesses are able to evidence calculations and keep a copy of all relevant records for six years.
In the period to 2nd June, HMRC reported receiving over 2,000 claims of abuse of the CJRS and out of the 900 that have been reviewed – two-thirds of businesses have had action brought against them and this week saw the first arrest relating to furlough fraud.
Whilst it is right that HMRC should take a tough stance on deliberate fraud in relation to these support schemes, the potential for genuine errors is high in the case of the CJRS. The scheme itself is complicated and the published guidance has been subject to many revisions. In the case of genuine errors made in good faith, we would hope a softer approach will be taken.
New draft legislation to be included in the Finance Bill will allow HMRC to convert each £1 of excess or wrongly claimed support payment into £1 of tax liability, meaning a 100% clawback. This may seem an unusual approach but converting the overclaimed amount into a tax liability means that HMRC can use their existing systems to recover this and crucially apply penalties.
The penalty regime is punitive and allows HMRC to apply penalties of up to 100% of the amount assessed. This could see HMRC demanding repayment of 100% of the funds claimed in error, plus the same again in penalties. A severe response given the confusion surrounding the CJRS and the many revisions that have been made to official guidance. Not to mention the complexities of V2 of the CJRS which introduces flexible furlough from 1st July.
Several high-profile companies have already opted to repay funds they received from the government under the scheme, primarily due to public pressure however the risk of clawbacks and penalties is also likely a factor.
Given the complexity of the scheme and the many revisions to the guidance, it could pay to review any claims you have made under the furlough scheme and check your paperwork is in order now to ensure you are not facing a clawback plus penalties later.
The good news is that the draft legislation allows an amnesty period of 90 days. This means if an employer notifies HMRC within 90 days of the later of when Royal Assent is granted to the Finance Bill, or when the income tax became chargeable, it will be able to repay money received under the CJRS without incurring any penalties. It is likely to make its way through parliament and receive royal assent later this month. It is relatively straightforward to make a correction online and if necessary, make a repayment. You can find more information on how to do this here.
Of course, if you have any concerns regarding your claims under the CJRS, you should contact us or speak to your accountant directly.
Appointing an accountant can save you time and stress when starting up on your own. If you would like to speak to someone about any of the above information or any other queries you may have, arrange a callback and a member of the team will be in touch.