CJRS enquiry

Repayable by director?

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Hi. Our client has completed their own CJRS claims. The client 's business structure changed in January 2020 (not great timing!) which meant their business would be involved in product development and so the income/ profits would suffer in the short term. To make up for this, in line with the director's contracts of employment, the directors increased their salaries to allow for the fact that shareholder dividends would be lower in the short term. The client based their CJRS claims based on these revised salaries which was claimed until September 2021 due to the product development not having access to their customers whose businesses were closed. HMRC have raised assessments from March 2020 to September 2021 for overclaimed CJRS which they have based on the previous lower salaries, ignoring the contractual increases.. This puts the company in a position where it may be untenable (they have still not got contracts for the new product). The client is therefore considering liquidation, however we have advised HMRC may seek to pursue the CJRS claims personally. 

Has anybody had any experience of whether HMRC are actively pursuing this route at the minute  or any other feedback?

Replies (20)

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By David Ex
07th Mar 2022 15:03

What’s your view on the validity of the claims?

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Replying to David Ex:
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By littletosh
08th Mar 2022 09:10

My opinion is that they were entirely in the spirit of the scheme.

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Replying to littletosh:
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By Hugo Fair
08th Mar 2022 12:02

HMRC (and the law) don't generally recognise the concept of "in the spirit of the scheme" as a measure of compliance.

You said "business structure changed in January 2020 .. the directors increased their salaries to allow for the fact that shareholder dividends would be lower in the short term." So when were these new salaries first paid? And in which FPS were they first reported?

Now re-visit the eligibility rules as at the time of their first CJRS claim and see if it was compliant. If yes, take it up with HMRC; If no, ...

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By Matrix
07th Mar 2022 15:10

You will need to get your head back into CJRS and work out whether the Feb 20 salary should be used or the annual average. So were they a fixed rate or variable rate employee? In which month were the salaries increased?

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Replying to Matrix:
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By littletosh
08th Mar 2022 09:07

Previously a fixed salary of £1000 per month (except one director who purely took dividends if the profits allowed) until January 2020 and then a fixed salary of £3000 each from January 2020 to date.

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Replying to littletosh:
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By Matrix
08th Mar 2022 09:44

And the January and February 2020 RTIs were filed on time?

I would read through the rules re fixed and variable employees but it sounds like a fixed salary.

On what basis have HMRC reduced the claims?

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By gillybean04
07th Mar 2022 17:52

Who was left working if both directors were on furlough from march 2020 until september 2021?

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Replying to gillybean04:
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By littletosh
08th Mar 2022 09:05

Nobody. The directors were carrying out admin duties, but their clients (UK universities) were essentially closed to outside contractors for the entirety.

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Replying to littletosh:
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By Bobbo
08th Mar 2022 13:52

What is "admin duties"? Is it different from the statutory duties a director must perform by virtue of their office?

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By Duggimon
08th Mar 2022 10:40

HMRC's argument is, on the basis of your OP, wrong.

Provided these raises were contractual and resulting in a fixed salary, the client appears to have made the claims correctly. If you've got the documentation proving it I would have no hesitation in arguing back.

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Replying to Duggimon:
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By littletosh
08th Mar 2022 16:09

That was my thoughts too. The rises were contractual (prepared by solicitors, documented and minuted) and the employees were entitled to these salaries. My understanding is that the new salaries form the basis of the CJRS claims as they are non-discretionary and the company was obliged to pay these salaries?

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Replying to littletosh:
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By Rammstein1
09th Mar 2022 10:54

[quote=littletosh]

The rises were contractual (prepared by solicitors, documented and minuted) and the employees were entitled to these salaries.

How many directors get a solicitor to prepare documents to support a £2K a month salary increase? This smells a bit funny.

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Replying to Duggimon:
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By littletosh
08th Mar 2022 16:10

All RTI submissions made correctly and on time also.

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By Bobbo
08th Mar 2022 14:04

Not relevant to the validity of CJRS claims but i'm baffled as to what the logic behind what the client did. If i'm reading right the thought process was :

- profits will be lower due to change in business activity
- thus there will be less to distribute as dividends
- to make up for reduced dividends we will increase director salaries
= profits are even lower ???

if dividends were going to be limited by lower profits in the coming period, where were the funds to pay the increased salaries going to be coming from?
very lucky for the directors that very shortly after making this decision a government scheme was introduced to cover 80% of salaries!

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Replying to Bobbo:
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By justsotax
08th Mar 2022 14:11

very 'lucky' indeed......

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Replying to justsotax:
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By littletosh
08th Mar 2022 15:58

The client has had no income for almost two years. Their business has been decimated. They have been left with c£100,000 of debt.

Interesting definition of "lucky"?

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By Roland195
08th Mar 2022 16:46

To be fair, you can see why HMRC are enquiring into this case.

1. What level of salaries were paid from Sep-21 onwards?

2. Were they back working at this point?

3. What/who was supposed to pay for this before the CVRS was in existence?

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Replying to Roland195:
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By littletosh
08th Mar 2022 17:28

I can absolutely see why HMRC would enquire. On the face of it, it looks incorrect, however based on the rules CJRS has been claimed correctly. If CJRS was not in existence the business is likely to have faced closure. However, had there been no CJRS it would have meant no pandemic and the business would have continued to be successful. The salaries have remained the same since Sept 2021 and the product development is now taking place.

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Replying to littletosh:
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By Hugo Fair
08th Mar 2022 20:57

To repeat my questions from 12:02 above:

So when were these new salaries first paid?
And in which FPS were they first reported?

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By psimonparsons
09th Mar 2022 09:47

Contractual increases (how can you do that when closed) do not change the original reference salary for CJRS purposes. Looks like a fiddle, sounds like a fiddle, it may be a fiddle.

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