Director at Crossland Employment Solicitors
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How firms can prepare for HMRC furlough fraud inspections

Employment solicitor Barry Ross looks at how businesses and accountants can prepare for the inevitable HMRC furlough fraud inspections.

12th Jan 2021
Director at Crossland Employment Solicitors
Columnist
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HMRC investigation
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The speed at which the Coronavirus Job Retention Scheme was set up meant that guidance and Treasury Directions issued were unclear and often conflicted. They also changed frequently as HMRC got to grips with the issues of the scheme and the evolving needs of the economy.

The scheme relies heavily on companies submitting claims themselves, opening it up to significant abuse. HMRC’s Chief Executive, Jim Harra, told the Commons Public Accounts Committee that while the scheme had saved nine million jobs, it was a “magnet for fraudsters”. 

Research by Crossland Employment Solicitors investigating furlough fraud found that over a third of employees had been asked by their boss to work while furloughed by their companies. 29% had been asked to carry out administrative tasks and one in five had been asked to cover someone else’s job, or work for a linked company.  

The National Audit Office also reported over 10,000 reports to the furlough fraud hotline with employees being asked to work despite being claimed for as furloughed staff. HMRC believes that up to 10% of CJRS payments have been made incorrectly. 

To address this, as well as incorrectly submitted claims, HMRC introduced an amnesty for furlough rules breaches, then sent “nudge letters” to employers to check their claims and began investigating claims and potential fraud. Those investigations have already resulted in a number of arrests

While the penalties for furlough fraud can be severe, including refunding grants, unlimited fines and prison sentences, it is not HMRC’s intention to severely punish companies who have merely made mistakes, they are seeking to tackle abuse and fraud. 

 Steps to prepare for any investigation 

Make it as easy as possible for HMRC to see that you have complied with the rules of the scheme. Not only does this help to demonstrate that you have done things correctly, but if there are inadvertent errors, it will help to show that these were not deliberate.

Make files for each employee and retain at least the following information:

  • Written confirmation of the notification to furloughed employees and the agreement for the employee to return to work and the hours/shifts etc they will be working (collective agreements with a trade union would also be sufficient). Confirmation of the employee’s agreement is also a good idea for best practice and must be retained for five years. Records of the amount claimed, claim period, calculations used and usual hours must be kept for six years. 

  • Confirmation that the employee was employed at the relevant date and an RTI submission had been made for them by the relevant date, or evidence of rehiring or a TUPE transfer.

  • A record of when the employee was furloughed and when they were working  – particularly relevant for flexible furlough claims.

  • Employee earnings used for calculating the claims made for “usual pay” (depending on whether the employee has fixed or variable earnings and taking into account salary sacrifices).

  • Records of the amount claimed, the claim period and claim reference number.

  • Records of what the employee is then actually paid including pension, NI costs and contributions and record of holidays taken in the year

  • Evidence of employees being told not to work during furlough, including emails or out of office notifications. If specifically investigated, it may be wise to get statements from employees to confirm that they were told not to work and did not do so.

  • Evidence of any training carried out to demonstrate that it was just training and not work.

  • Evidence that an employee was clinically extremely vulnerable or high risk and had to shield. 

  • Evidence of caring responsibilities for the vulnerable or for children sent home from school.

  • Evidence of eight weeks’ notice from women returning from maternity leave.

  • Records of any adjustments or corrections made to previous claims.

If, as part of your own self audit, you find that errors have been made or you have overclaimed, it is possible to correct this or repay the overpayment through the HMRC portal. However, you must do this promptly to avoid being issued with a penalty of up to 100% of the amount claimed and prevent additional tax liability. Businesses must notify HMRC by the latest of either:

  • 90 days after the date you received the grant you were not entitled to or 90 days after the date you received the grant that you were no longer entitled to keep because your circumstances changed.

  •  20 October 2020, though this date has obviously passed.

I recommend businesses and accountancy firms ensure they carry out their own due diligence and arrange paperwork records for each employee. Carrying out a self audit to ensure compliance long before HMRC intend to investigate will help to ensure that you have full and accurate records that can easily demonstrate compliance, as well as being proactive and remedying any errors that have occurred along the way.

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