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BDO caught between a rock and a hard place over CJRS claims

Philip Fisher asks whether it is fair for accountants to be embarrassed into reimbursing the government for furlough payments.

17th Dec 2020
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Between a rock and a hard place
istock_rock-and-a-hard-place_Gary Landry Jr

Accountants love to see things in black-and-white. If the law indisputably permits certain behaviours, then it is hard to understand why one would not follow its principles, while ensuring that no guidelines are breached.

This is going to be an article with plenty of questions about morality but few answers.

As many readers will have seen, over the weekend BDO found itself in the middle of a highly publicised bout of scrutiny regarding its decision to claim relief under the furlough scheme.

BDO benefited to the tune of £4.1m

The first question is why the actions of a mid-tier firm of accountants should have hit the headlines in most of what used to be known as the broadsheets. Did someone leak the story?

During what has been a tough year for all, the furlough scheme was introduced at breakneck speed by new Chancellor of the Exchequer Rishi Sunak in the spring.

The intention was to save jobs regardless of cost following his more recently abandoned principle of “whatever it takes” to protect the economy and people’s livelihoods.

To put it as neutrally as possible, several of the policies introduced at that time used an extremely broad brush and were open to abuse. That has been particularly prevalent with regard to Bounce Back Loans and furlough.

There is no suggestion BDO tried to take advantage of the legislation in a manner that could in anyway be regarded as unreasonable.

Like so many of its peers, the firm was obliged to close down its business premises for months and reduce operations. It followed that a number of administrative staff and students temporarily became surplus to requirements.

Had there been no furlough arrangements available, it is possible that the fifth-largest UK accountancy practice might have kept some of these people on the payroll, although it is equally likely that others might have found themselves redundant.

According to press reports, BDO benefited to the tune of £4.1m, which is a significant sum by anybody’s standards but represents little more than a drop in the eventual furlough ocean and is unlikely to make much difference to an economy that could well be trillions in debt before we finally see the back of the pandemic.

Many readers will struggle to understand why a respectable firm of accountants should feel any kind of guilt when challenged about a legitimate claim made under a government-sponsored plan.

It is noted that a number of large companies, especially supermarket chains, have agreed to pay business rates, even though they have been exempted from doing so under parallel emergency legislation.

The obvious response is that, in its haste, the government blundered badly by introducing a scheme that was ill-directed. This is hardly without precedent and it is unreasonable to expect taxpayers to wipe egg off a Chancellor of the Exchequer’s face. Since when did the government become a charity and, if it is, can the BDO partners claim tax relief for their generous donation?

'BDO must be regarded as a victim'

The alternative argument is based on what is loosely described as “morality”. BDO has had a relatively good year compared to the vast majority of UK businesses and therefore its equity partners can afford to give back the furlough payments without ending up on the breadline.

Many readers might see this as specious. If Rishi Sunak and his colleagues at the Treasury have screwed up, then surely it is down to them to introduce legislation to recover equivalent amounts from those that have been hit less hard by the pandemic. This could be achieved by increasing income and/or corporation tax rates. Indeed, the most obvious solution would be to introduce a 50% top rate of income tax – shock, horror.

It does seem wholly unfair that supermarkets and accountancy practices should be attacked in the media and embarrassed into making payments that are not required by law.

This could also be the thin end of the wedge. If “rich” partners in accountancy firms shouldn’t claim furlough payments, what about pension tax relief or even Principal Private Residence exemptions?

Using this logic, BDO must be regarded as a victim. The only wrong step might have been to misjudge public perceptions and attempt to defend a position on one day, before being forced into a Johnsonian U-turn on the next. These days, reputational risk has become an important consideration for any major professional practice and, in that light, the firm might have been wiser to accept the inevitable when originally confronted.

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