Furlough Scheme Fraud Penalties
Budget announcement. In Budget 2021 the Chancellor announced that HMRC would be given £100m to recruit 1,200 new staff to work exclusively on a Taxpayer Protection Force that would focus on recovering the estimated billions of pounds that have been paid out incorrectly through fraud and error under the Coronavirus Job Retention Scheme (CJRS), with a six-year window to raise enquiries.
Legislation. Enshrined in Finance Act 2020 was a new penalty regime to cover overpaid grants under the CJRS. These are classed as tax that is due to be repaid to the Exchequer, and without voluntary notification within 90 days of realising that there has been an overclaim there is the potential for both a failure to notify penalty and an underpayment penalty.
Taxpayer behaviour. The failure to notify penalties are based on taxpayer behaviour, with larger employers with greater resources expected to have achieved a higher level of “reasonable care” than an SME. Reasonable care can be demonstrated, for example, by having to hand the guidance that you relied on when you made a particular CJRS claim or how you documented the decision-making process that led to particular claim values. If reasonable care can be demonstrated, then even if there has been an error, a penalty is unlikely if the money is repaid.
Penalty range. If HMRC is successful in proving lack of reasonable care, the penalty range is between 0% and 30%, with any penalty being reduced based on the co-operation of the employer in assisting HMRC in calculating what’s due to be repaid.
Prompted and unprompted disclosures. An employer is less likely to face a penalty if they voluntarily disclose any CJRS errors and repay the money. Once an employer receives a compliance letter from HMRC this is classed as a prompted disclosure and the failure to notify penalty can be considered. The compliance letters that are being sent to employers (payroll agents and accountants are not copied) require a huge amount of information to be supplied to HMRC. It’s not made clear in the letter which claims are being queried, so documentation relating to every claim and employee within the claim has to be supplied, including evidence of payment on to the employee. The letters have a two-week deadline, but you can request additional time as it’s wholly unreasonable for a large or medium-sized business to pull all the information together within this timescale.