£3.5bn furlough payments lost to error or fraud
Up to £3.5bn in deliberate fraud or error could have been paid out in the furlough scheme, HMRC’s chief Jim Harra has confirmed to the Public Accounts Committee (PAC).
During a televised virtual hearing on Monday that also covered the loan charge and the Eat Out to Help Out scheme, Harra revealed that between 5% to 10% of the £35.4bn furlough grants could have been paid out as a result of deliberate fraud or error.
Furlough fraud and error
Under questioning from Conservative MP Richard Holden, Harra calculated the margin of fraud and error as ranging between £1.75bn and £3.5bn.
“We are not going to try and find employers who have made mistakes in compiling their claims because this is obviously something new that everybody has to get to grips with in a very difficult time,” he said. “We will expect employers to check their claims, and repay any excess amounts, but what we will be focused on is tackling abuse and fraud.”
Since the Finance Act received Royal Assent in July, Harra told the MPs that HMRC has power to claw back grants employers are not entitled to.
Employees who feel their employer is not complying with the scheme are encouraged to report the fraud confidentially on GOV.UK. This fraud hotline has already received 8,000 calls. Harra explained that this information will be used to risk assess employers for compliance action.
In addition, HMRC identified 27,000 high risk claims that “look out of step”. The department is currently making enquiries into 11,000 those claims.
Harra added that although there were some prepayment controls designed to prevent fraudulent payments, the system was not designed to hold up payments to legitimate employers where there might be concerns about the amounts involved.
“The first step is to contact those employers to give them an opportunity to correct their claims, but if they do not do so then we do have the resources to look into that,” said Harra.
Fiona Fernie, a disputes resolution partner at Blick Rothenberg, questioned whter the “missing” £3.5bn was just the tip of the iceberg.
“This figure is purely an estimate and has been issued just a couple of weeks after HMRC issued the first 3,000 letters to firms asking them to check the amounts that they had claimed and warning them that they were under investigation,” she said.
“With many more businesses already under review with a view to investigation, it remains to be seen whether the estimate is accurate.”
HMRC is writing to employers to root out fraudulent CJRS claims and those abusing the system. The first letters landed on employers’ doormats on 18 August.
Eat out to help out
The PAC chair MP Meg Hillier also challenged Harra over the letter he wrote to the Chancellor questioning the value for money of the eat out to help out scheme.
Due to the speed with which the Covid support scheme was developed, Harra said HMRC simply did not have the time to do the analysis that you might normally wish to do for launching a policy of this scale. So, he was unable to “determine counterfactuals that enable you to arrive at a value for money judgment” and for this reason, there was “significant uncertainty as to whether a policy will be value from money”.
Without enough time to gather further evidence, Harra told the committee that under the Treasury guidelines he had to seek a direction. Now the scheme has ended, Hillier asked Harra if HMRC had analysed the costs and benefits.
“There’s already clear evidence that the scheme achieved its objectives in terms of reassuring the public about it being safe to go into restaurants and helping restaurants to recover from the lockdown period. However, there’s obviously much more work to do to evaluate its outcomes aside from money.”
He added that HMRC and the Treasury are discussing how they will carry out a post-implementation evaluation of all the Covid-19 schemes, focusing on their implementation, whether they achieved their objectives, the value for money and the levels of error and fraud. But no timetable has been set yet for these reviews.
Meanwhile, Harra passed the baton to Penny Ciniewicz, HMRC’s director general for customer compliance group, to update the PAC on the loan charge and the thousands of taxpayers who have until the 30 September to make a settlement.
Around 6,000 individuals are in active settlement conversations with HMRC before the deadline, Ciniewicz confirmed.
HMRC estimated that around 50,000 individuals were affected by the loan charge. Ciniewicz said 11,000 taxpayers were taken out by the changes following Sir Amyas Morse’s December report. HMRC has written to the 12,000 left to settle.
The HMRC director estimated that 6,000 are “actively in the process of conversations” with the tax department and may settle, while a further 2,000 have already settled or were taken out the scope.
A small number of individuals have also asked paused conversations with HMRC due to Covid-related issues. But she added that 3,000 individuals left have not responded to HMRC’s letters or have missed deadlines. “It may be tricky for them to settle before the 30th of September,” she said.
MP James Wild, who pursued the loan charge questions, asked about the fairness of the process. “I’ve had constituents having problems getting hold access to physical copies of inquiry notice, for example, with staff are working as they can’t get them.”
Ciniewicz said HMRC has been “communicating with customers for some time now to help them” and have around 1000 staff working on the loan charge settlements.
But when asked if HMRC has the power to extend the deadline, the HMRC director said “the legislation sets out the 30 September is the deadline and we can't adjust that deadline.”