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Clawback kicks in after first furlough error case

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In this first case of its kind, HMRC successfully challenged an employer who had made a furlough scheme claim but the employees did not appear on submissions until after the deadline date.

12th Aug 2022
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Compliance has always been the name of the game when it comes to the Coronavirus Job Retention Scheme (CJRS). The case of Carlick Contract Furniture Limited vs HMRC is, perhaps, a wake-up call for all employers as the reality of HMRC’s clawback compliance regime kicks in. 

From the very start, the CJRS had three important clauses contained in the Treasury directions that were issued, all of which are evident in this case:

  1. The employer must have had a PAYE scheme registered on HMRC’s systems on 19 March 2020. Essentially, this meant that the employer must have submitted at least one Full Payment Submission (FPS) on or before this date.
  2. The scheme could only be applied to individuals where HMRC had received a Real Time Information (RTI) return on or before the “relevant CJRS date” of either 28 February or 19 March 2020. These dates are contained in the Treasury directions and also the Treasury press release dated 15 April 2020. This release simply says that the eligibility cut-off date for the scheme was extended from 28 February 2020 to 19 March 2020 “to ensure the scheme helps as many people as possible”. However, they are clear that an RTI return containing the employee must already have been received at HMRC (via the FPS).

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Replies (29)

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the sea otter
By memyself-eye
12th Aug 2022 11:52

Who was it said "tax needn't be taxing"?

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By Paul Crowley
12th Aug 2022 18:02

How the heck could anyone claim they read the headline and could not be bothered to look at the rules
I would have been shocked and dismayed if knowingly breaking the rules was permitted
It would make fools of those that acted honestly and complied, and create compensation claims likely for the advisor that gave accurate and honest opinions.
The directors represented the company
My guess is that they could not find anyone prepared to represent the company

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Replying to Paul Crowley:
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By the_drookit_dug
13th Aug 2022 10:19

My biggest headache with the scheme was employers reading the headlines in the newspapers and filling in the gaps themselves with nonsense. Never occurred to them to read the detailed HMRC guidance, let alone the treasury directions.

So much my time was spent pushing back against rules folk simply made up themselves.

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Replying to the_drookit_dug:
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By Hugo Fair
13th Aug 2022 12:02

To be fair to at least some of the optimistic employers, HMRC also appeared to be "filling in the gaps themselves with nonsense".
Otherwise why would they have needed to issue so many updates/corrections to their guidance (sometimes more than once on the same day)?

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Replying to Hugo Fair:
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By Paul Crowley
15th Aug 2022 18:12

They (HMRC) started with do your best (just like a good Arkela) but turned into Kaa AKA Sunak the snake instructing to back track and pay back

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By john corbett
12th Aug 2022 18:33

I would like to have seen consideration of Rule 2, sections 18(1) and 686(1) ITEPA 2003 by the Tribunal as in my opinion the deemed date of first payment would have been in February and not the actual date in March. If the payment was deemed to have been paid in February is it not also deemed to be on the RTI return for February.

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Replying to john corbett:
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By Hugo Fair
13th Aug 2022 12:14

The simultaneous joy and horror of the digital world towards which HMRC is insisting on ushering us, is that everything is factually binary.
No more could/should/maybe/sometimes etc ... just is/isn't.

It's irrelevant if an FPS should have been submitted ahead of the deadline or that it should have included pay for a specific employee ... if it actually arrived late or with details missing for an employee, then those are facts (no deeming allowed).

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Replying to Hugo Fair:
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By Paul Crowley
15th Aug 2022 18:15

Agree
It must be real is easy to understand, as in MADE a return under RTI
Playing deemed games really is at the employers risk

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Replying to john corbett:
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By gillybean04
13th Aug 2022 12:32

Why would the deemed date of the first payment have been February in your opinion? Were they supposed to be paid earlier but there was mistake made which led to them being paid late?

Not that it would matter for CJRS as far as I know. Since for CJRS you needed to have actually made an rti submission reporting that employee's payment in order to be eligible and whether RTI was submitted is a question of fact, no deeming required.

I believe the outcome of your proposed argument would be that the employer failed to report the payment by the correct date/made an incorrect return (and possibly subject to penalty as a result). Not that they would qualify for cjrs.

I think perhaps you're misunderstanding rule 2. If you are paid monthly on 25th of each month for the whole month, you would gain entitlement to be paid for the 1st of the month on the 1st. But wouldn't be entitled to be actually paid until 25th. Rule 2 is talking about the 25th rather than the 1st.

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Replying to gillybean04:
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By john corbett
15th Aug 2022 16:59

The pay date in this case is the 26th and both employee's commenced before the pay date of 26 February and were entitled to be paid on the 26th. The employer was unable to pay them in February due to the pay roll cut off date but this would not automatically take away the entitlement and rule 2 needs to be considered. If rule 2 applies it is the legislation that deems the payment to have been made in February and the question is if part of the payment made and included on RTI for 26 March is deemed paid in February should this not be deemed as included in the RTI for February. Not as simple as saying no deeming required it was for the tribunal to consider and they didn't.

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Replying to john corbett:
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By richard thomas
15th Aug 2022 18:03

I agree with John Corbett that payments of PAYE income were made to the two employees on February 26th by virtue of Rule 2 in s 686 ITEPA. Section 18 is irrelevant as that applied to the employees, who equally are treated for Chapter 4 Part 2 ITEPA (charge to tax) as having been paid on 26th February for earnings in February.

By regulation 21 of the PAYE Regulations, the employer was under an obligation to deduct tax from any payment of PAYE income. There is no definition in the regulations of “payment”, but under the rule of construction that a term in secondary legislation has the same meaning as in the primary legislation that empowers the making of them, then s 686 applies.

By regulation 67B the employer was under an obligation to make an RTI return on before before 26 February of these payments. It did not.

Regulation 67E applies here so that the March RTI return is treated as including an amended February return for the two employees.

Paragraph 5 of the first CJRS direction says:

“The costs of employment in respect of which an employer may make a claim for payment under CJRS are costs which-
(a) relate to an employee-
(i) to whom the employer made a payment of earnings in the tax year 2019-20 which is shown in a return under Schedule A1 to the PAYE Regulations that is made on or before a day that is a relevant CJRS day,”
Those days are 28 February 2020 or 19 March 2020.

A straightforward interpretation of the paragraph is that while the employer made a payment of earnings on 26 February, before any relevant CJRS day, they did not show the payment in a Schedule A1 return (made under regulation 67B or 67E) made on or before that day.

Nothing in the PAYE Regulations deemed an amended return under regulation 67E to have been made when the return it amends was made.

To get home the appellant was in effect asking the FTT to write into the Direction at paragraph 5(a)(i) the words “or ought to have been” before “made”. That can only be done on the basis of clear evidence that the additional words are what the Chancellor of the Exchequer, on the advice and suggestion of HMRC, intended but failed to provide (the Inco Europe test) or the words are necessary to avoid absurdity (the Humber Buses test).

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Replying to richard thomas:
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By Hugo Fair
15th Aug 2022 18:28

"Nothing in the PAYE Regulations deemed an amended return under regulation 67E to have been made when the return it amends was made."

Indeed - and the very first set of GOV.UK explicitly stated that the criteria was what had actually been filed as at the cut-off date ... and went on to say that subsequent amendments might well be correct (and therefore necessary for RTI) *BUT* would be ignored with regards to ascertaining CJRS entitlement.

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Replying to richard thomas:
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By john corbett
16th Aug 2022 01:27

Thanks for your reply, I should have done a little research before posting.

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By SPHAccounting
12th Aug 2022 23:38

History will show that Western governments threw away their pandemic planning and got spooked by the Chinese lockdown response. The harms caused will last for years.

Thanks (6)
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By Hugo Fair
13th Aug 2022 12:28

The most interesting fact of this case is that HMRC have chosen to pick on such a relatively minor claim which (on the surface) appears to have been 'optimistic' rather rather than maliciously fraudulent.
[I/we don't know the actual details of the case, so there may be more to it than is apparent].

But there are cases where:
* ERs claimed but never paid the CJRS monies over to their EEs;
* ERs claimed but for EEs who were still working (not furloughed);
* ERs claimed for EEs who no longer worked for them;
as well as the harder to prove ..
* ERs claimed for EE group X whilst taking on fresh EE group Y, etc

And that's before you get to the out-and-out fraud cases involving companies 'selling' their records to a 3rd-party (whilst dumping their own staff) and other organised criminal activities.

But it's simpler and cheaper (wholly automated) to go after a company who were within the spirit of the law. Says a lot about HMRC's moral vacuum and leadership IQ!

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Replying to Hugo Fair:
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By gillybean04
13th Aug 2022 13:03

Sorry Hugo, but I would mildly disagree. Their argument boiled down to it wasn't interesting or important enough for the employer to do more than glance at headlines, that they had such scant regard for the rules that they didn't even bother checking what the rules were. Much less how those rules applied to them.

Having such little regard for the rules is normally closer to deliberate behaviour than honest.

Additionally, if they only ever checked the headlines, how did they know how much to claim?

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Replying to gillybean04:
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By Hugo Fair
13th Aug 2022 14:49

Actually I don't think we're disagreeing ... because I wasn't defending the plaintiffs in this case.
Like you I suspect that deliberate behaviour was involved, albeit based on a sense that 'it was meant to have covered our new employees' even though the rules clearly said it did not.
[People are very good at convincing themselves that black is white when it suits them - and the knowledge that the new employees would have been eligible IF only they'd been included in the Feb FPS (which they could've been) would have bolstered their mis-guided sense of 'rightness'].

What I (hoped that I) was doing was castigating HMRC for focusing on the low-hanging fruit, when there are far bigger and more deliberately fraudulent targets (where the primary intent was to cheat the system) out there as well.

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Replying to Hugo Fair:
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By richard thomas
14th Aug 2022 21:34

There's an interesting debate to be had about whether extreme carelessness is "deliberate" conduct, and whether convincing yourself that black is white is dishonest, but HMRC we're not arguing for that and did not need to. The judge said the witnesses were honest.

I don't agree about low hanging fruit. Just because the first Covid payments case to reach a tribunal or court was this one doesn't show anything at all about what HMRC are doing in general in the cases. I expect the vast majority of cases where HMRC have assessed an incorrect claim have not been appealed and are already settled. In the case of the high-hanging fruit (the fraudulent claims) it takes a lot more time and effort to mount a successful prosecution (which is not in the Revenue's control these days) than to make an assessment which is appealed.

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Replying to richard thomas:
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By Hugo Fair
15th Aug 2022 10:38

Fair points, as always.
I hadn't put the likely 'settled cases' into the weighing scales, so I guess any early cases being reported are more likely to be in the 'interpretative' category.
Still have an uncomfortable sensation of smaller (otherwise compliant) employers being too easy a target and that being a raison d'être for targeting them ... but accept that is no longer entirely within HMRC's control.

Consideration of "whether convincing yourself that black is white is dishonest" is an interesting philosophical point - presumably at least partially dependent on the (unprovable) degree to which the conviction was the planned end-game or merely a random wrong turning along the way to a conclusion?
But this is probably not the forum for such discursion.

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Replying to Hugo Fair:
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By ds
15th Aug 2022 14:21

I expect there are many who made claims under the FS and Bounce Back Loans whose companies have since been dissolved or declared bankrupt and the directors now left the UK. I doubt these high hanging fruit will be plucked. The scale of the fraud is immense, especially when various Covid related procurements offered without competition or audit are yet to be uncovered. The 37 billions for the track and trace circus must go down as one of the biggest, in your face frauds.

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Replying to Hugo Fair:
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By meadowsaw227
15th Aug 2022 09:41

Presumably a good percentage of the cases you highlight will have accountants who will either make them pay the money back or go through the process of reporting them !! .
The buck stops with us .

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By mhkay
15th Aug 2022 09:43

Given the £billions of entirely fraudulent claims under this scheme, it seems odd and petty that HMRC should be spending their time on a minor infringement by an employer whose only fault was to not read the small print carefully enough (and to assume that the regulations would be logical).

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Replying to mhkay:
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By ds
15th Aug 2022 14:24

I expect they have been given a kicking and told to get back to the office and do some work. They have to be seen to have a few teeth left.

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Helen Thornley Profile picture
By Helen Thornley
15th Aug 2022 09:56

What struck me was that a mistake by your employer can now result in your name in an AWEB article and a public tax case from which it may well be possible to estimate your salary. Which is a bit harsh when it's potentially not your mistake. (Granted in this case with two employees it's not possible to extrapolate but presumably it could be in other cases.)

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By Ian McTernan CTA
15th Aug 2022 12:56

Totally harsh by HMRC to even take the case in the first place, and goes to show they would rather go after people who are trying to comply rather than those that clearly didn't.

As a result of this, a company is £20k out of pocket plus all their costs for doing the right thing and keeping on these employees, who were employed before the cut off date but because of the rules that no sane human who has better things to do could follow (having been changed upteem times whilst employers had much better things to do- like saving their businesses) have now been shafted.

Long gone are the days of reasonable well trained Inspectors, now it's 'all taxpayers are evil' and grab every penny and fine and penalty that you can possibly think of.

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Replying to Ian McTernan CTA:
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By Roland195
15th Aug 2022 16:16

There is also the frankly bizarre outcome that the employees in question who had since resigned, worked notice periods & signed a new employment contract with CCF Ltd could quite legitimately be paid by their prior employers.

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Replying to Roland195:
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By Hugo Fair
15th Aug 2022 16:43

I'm missing the point you're making here ... the 'problem' was never whether or not the employees should & could be paid by the employers.

The issue was solely whether the employer was entitled to reclaim the furloughed component under CJRS - and the answers was not legally (even though morally might produce a different answer).

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Replying to Hugo Fair:
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By Roland195
16th Aug 2022 09:16

I suppose the view I am trying to express (badly) is that I find it absurd that the CVJRS payments could not be made to the actual employer to protect the job the employees where currently contracted to but could be made to an ex-employer for a role they have already left.

If the right amounts ended up in the hands of the employees in question and the qualifying conditions met, does it really matter which company this was transited through?

The law is an [***] and no doubt you will think I am, but it seems desperately unfair to hold CCF Ltd to the letter of the (hastily drafted ) law.

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By djtax
22nd Aug 2022 15:18

In my opinion it all goes back to HMRC botching how they modified the criteria when moving the initial deadline from end Feb 20 to 19 March 20. Whilst no doubt genuinely believing this would bring in more employees HMRC overlooked that many companies run monthly payrolls which are processed at or near each calendar month end - such as the company in this case. At the time I made this point to my local MP thinking that there was an unintended consequence in extending the deadline actually reducing in some cases the workers qualifying for CJRS. My local MP did not understand the point and it never went any further.

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