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Social posts force furlough claim repayment

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A tax tribunal has ruled that maintaining a social media presence during lockdown is considered to be ‘work’ for the purpose of a furlough claim, in a case involving a children’s entertainment company.

23rd Jun 2023
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Background

Glo-Ball Ltd (GBL) was incorporated in September 2018 and ran various events for children, as well as parent and baby groups in the Warwickshire area. GBL mainly operated by advertising these events on social media, with roughly 90% of its business generated this way.

Lockdown

Unsurprisingly, GBL’s business did not thrive once the Covid-19 lockdown started, as it was no longer able to run any of its activities. Its social media output similarly declined, as the business had no upcoming events to promote.

Due to this downturn, GBL opted to furlough both of its directors, Michelle Dowler (MD) and Sam Dowler (SD). An email was sent to MD advising her that she “will not be able to undertake any work for the company during this leave”.

Furlough rules

To initially count as a furloughed employee from March 2020 (which the case refers to as the ‘classic period’), the Coronavirus Direction stipulates that the employee must be told they were to cease all work, must actually cease all work for at least 21 calendar days, and the cessation in work must have been linked to coronavirus.

The rules were then changed with effect from July 2020 to allow employees to return to work on a flexible basis (‘flexible furlough’), provided a claim was or could have been made during the classic period.

GBL claimed amounts for MD and SD in both the classic period (March to June 2020 for a total of £3,785) and the flexible furlough period (July to October 2020 for £5,700).

Work is work

HMRC requested further details of the claim and reached the conclusion that while SD met all the necessary conditions, MD did not.

Prior to lockdown, GBL estimated that around 15 hours per week were spent on social media, equating to around 80-90 posts. This plummeted during lockdown, with MD spending an estimated five minutes on social media over the course of a month and making (as it transpired) only six posts in April 2020.

This, HMRC argued, was nevertheless a non-zero amount of work, sufficient to make MD ineligible for the classic period. This had the knock-on effect that, because she was no longer eligible for the classic period, she also became ineligible for the flexible period, requiring the repayment of £3,449.65.

An assessment was issued in August 2021.

GBL did not take this lying down and promptly wrote to HMRC, two MPs and HM Treasury, stating that it did not understand why a few social media posts could impact its claim, that it was unhappy with how HMRC had conducted itself, and that it would not be answering any further questions. This was followed first by a request for internal review, then by an appeal to the first tier tribunal (FTT) in December 2021.

Rules are rules

GBL argued that they were exactly the type of business the rules had been designed to help, on which the FTT agreed completely. The issue was that this help could only be provided to businesses which complied with all the necessary rules.

To allow GBL to claim a payment under the initial rules and yet permit MD to continue in their role, albeit at a diminished level, was tantamount to having their cake and eating it too. The rules clearly require the employee to cease all work, not merely reduce their output.

The FTT was presented with a summary showing that, with the exception of July (where no posts were made), MD made between one and six posts per month in the period from March to September 2020. These ranged from advertising virtual events to blogging about the difficulties of lockdown to updating customers on business-related life events.

Although the FTT agreed that none of these posts generated any income directly, they were clearly intended to put (or keep) GBL in a position such that, after lockdown ended, it could resume generating income with minimal delay. This was indirect generation of income, akin to marketing, which the FTT had no hesitation in considering to be ‘work’ for these purposes.

MD was therefore not eligible for the payments within the classic period, which meant she was also ineligible for the later flexible period.

The appeal was dismissed.

Conclusion

On the face of it, GBL’s argument feels justified, as a social media post a week is almost a negligible online presence in the modern world. However, given the nature of the posts, it is difficult to disagree with the FTT’s logic.

The tribunal finishes its judgment with a final summary expressing sympathy with the appellant, but stating for all intents and purposes ‘it could be worse’.

“We wholly appreciate that this decision will cause the appellant financial hardship,” reads the judgment. “The only crumb of comfort that we can offer is that we suspect this financial hardship will be less acute than would have been the case had the support payments not been made to the appellant in the first place. At least now the appellant is able to generate income which might go some way towards satisfying the assessments.”

Replies (16)

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By Roland195
23rd Jun 2023 12:58

As with the similar case the other day, Companies House filings suggest that this amount will never be settled anyway which makes the statement at the end even more ridiculous.

I'd be interested in knowing what exactly sparked HMRC's interest in this case in the first place.

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By johnthegood
23rd Jun 2023 13:08

Something must have got HMRC interested in the first place, seems very harsh and the comments at the end show that the tribunal have absolutley no idea of how things work in the real world of small business.

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Replying to johnthegood:
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By Hugo Fair
23rd Jun 2023 23:02

They're only 'harsh' if you think their remit is to make moral judgements ... as opposed to their actual role of making findings of law based on evidenced facts.

You (or indeed I) can 'feel sorry' for the appellant, but the rules were clear (and communicated at the time to her) ... so her decision to break them (in however small a way) can only be to blame for the consequences once her actions were discovered.

Basically there's no such thing in law as being partly-compliant (at least not in this type of situation) ... as a judge once pointed out when remarking that it wasn't possible to be partly-pregnant.

She may have been particularly unfortunate (and misguided) to have broken the rules by doing something that leaves a very public and near-permanent footprint ... but that only affects the likelihood of being discovered, not the correctness of her actions.

FWIW it seems likely that she has stepped on someone's toes along the way (who has then blown the whistle), as HMRC don't have the resources or competence to have found this case on their own.

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Replying to Hugo Fair:
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By Hugo Fair
23rd Jun 2023 23:08

I can only assume that the company was unrepresented ... as surely no agent would allow/condone their reaction to receiving an assessment:

"GBL did not take this lying down and promptly wrote to HMRC, two MPs and HM Treasury, stating that it did not understand why a few social media posts could impact its claim, that it was unhappy with how HMRC had conducted itself, and that it would not be answering any further questions."

Straight out of the juvenile tantrum handbook - and guaranteed not to get anyone 'on side'.

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Replying to Hugo Fair:
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By Roland195
26th Jun 2023 09:51

I can understand their reaction. This sort of business was one of the hardest hit from lockdown as fell between two stools of being a hospitality business without premises so grant funding subject to the whim of the Local Authority so when HMRC undertook this inquiry boiling down to this technicality, I can see why the would feel aggrieved and seek help anywhere it could be found.

The legislation was hastily drafted with little thought towards the SME hence the backtracking around Director's statutory duties but this didn't go anywhere near to understanding that a business cannot simply be put into hibernation - How many messages do you suppose this business got threatening legal action over deposits/refunds?

If I am being honest, I doubt any Director who claimed CVJRS for themselves would qualify under this strict condition - at some point, they will have answered a message, taken a call or any other of the thousands of tasks that arise that could not be said to be acting in their Statutory capacity as a company director but the difference being they would have been unlikely to make a public post on social media proving it.

There is someone unsaid about the means of which this case was brought in the first place too - there is no suggestion of any procedural error with the claims or filings to flag & the amounts are relatively trivial in the scheme of it so my money would be on "intelligence" from a disgruntled employee/customer. Acting on this is not exactly wrong to be fair, however I can't help but feel it's the wrong focus for HMRC resources given the vast at stake elsewhere. That said, this is a nice, easy win for HMRC to show they are tough on fraud (with no distinction in the reporting of a case like this with zealous enforcement following strict interpretation & the case the other day that may have involved the backdating to suit).

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Replying to Roland195:
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By Hugo Fair
26th Jun 2023 12:06

I too "can understand their reaction" ... we're all human and, when under stress, need to let off steam.

However my point was that if they had been represented then I'd hope (with a degree of certainty) that they'd have been stopped from replying like that - particularly the "would not be answering any further questions" bit - which is what I described as being "straight out of the juvenile tantrum handbook".

So yet another example of where lack of representation leads to making matters worse.

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Replying to Roland195:
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By johnthegood
26th Jun 2023 15:54

Roland195 wrote:

If I am being honest, I doubt any Director who claimed CVJRS for themselves would qualify under this strict condition - at some point, they will have answered a message, taken a call or any other of the thousands of tasks that arise that could not be said to be acting in their Statutory capacity as a company director but the difference being they would have been unlikely to make a public post on social media proving it.

Absolutely, not many businesses that would survive for any length of time with the Directors doing nothing at all, I am pretty sure that a large percentage of claims would be rejected if they were properly looked into, its all very easy in hindsight but at the time the overwhelming feeling from everyone making the various claims was "what else can I do"

Of course the law is the law, however I have a huge amount of sympathy for a business owner that was unable to earn but desperately needed to keep some form of business going so that there would be something to go back to.

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the sea otter
By memyself-eye
24th Jun 2023 18:27

I know of several individuals who claimed furlough but did not cease 'work' (however that is described). Indeed one refurbished the pub themselves during lockdown.

Was that 'work?'

PS: pub looks lovely now.......

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Replying to memyself-eye:
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By Hugo Fair
25th Jun 2023 12:16

I presume the question was raised with tongue firmly in cheek, but ...

* Assume you're talking about any work during the early days of full furlough or any work carried out under partial furlough (but during the claimed days/hours).

* We're talking about an employee (for CJRS to be pertinent), so first question is whether any of the 'work' undertaken was as defined normally for their job role;
(if not, they could volunteer to do unpaid work - albeit not for same employer).

* As claimant in article discovered, you only have to trip the alarm once (for a single action) to negate the whole claim - which can turn out expensive.

Note: of course an employee can also be a director, at which point my above points become a little cloudier - in particular 'what is normal for job role?'

The most sensible solution (on your entirely hypothetical scenario) would have been for pub owner to arrange an unofficial 'swap' with say the local painter / decorator ... e.g. you volunteer to do up my pub for free and I'll supply free staff & booze for your daughter's wedding-party or whatever.
CJRS then allowable I reckon?

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By rmillaree
28th Jun 2023 09:59

For hmrc to take this case to the tribunal is a disgrace - i am judging this on the amount of time and effort spent on a case they could perhaps equally have lost as won. imho this is the kind of situation where furloughed director may have thought they were doing a favour by "keeping the lights on".

Perhaps they didnt advance the argument enough that a low level of posts is similar to other statutory details of directors . IMHO very strong argumnet that these posts could deemed necessary directoral duties - just to show customers they are still in business and therefore they are obligated as directors in that regard to keep teh company lights on.

HMRC should hang their heads in shame - and its a shame the tribunal didnt have the nouse to not to come to an over officious result if that could have been acheived. I suspect the tribunal/hmrc peeps may have low intelligence when it comes to the understanding that social media is used as primary comunciation platform as well as avertising platform for many companies. I suspect same hmrc/tribunal peeps would not have had same issue with directors emailing to say we are not opn now and updating when they may be open ?

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All Paul Accountants in Leeds
By paulinleeds
28th Jun 2023 13:15

I think that others have said / implied in this article that a director does various things:
Manages the company as a statutory director, with or without pay
Does work as an employee and is paid for that work

Surely, somebody could have successfully argued in court that the few and minimal social media posts were done as an unpaid statutory director, rather than through their role as a paid executive director/employee, in order to perform their fiducary duty, to look after the company.

My limited company £758 pm salary (£9,100 NIC ST limit) (and balance of profits in dividends) is not going to pay me to do much accounting/tax work as an employee. I cannot believe that if I, as an unpaid director, made a few posts (compared to the usual hundreds each month as an non-furloughed director) on my blogsite / Facebook account that this could in anyway be considered to have been performed by me as an employee on furlough.

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Replying to paulinleeds:
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By Roland195
28th Jun 2023 14:43

The thorny issue of Company Director, Worker, Employee or Chief Cook & Bottle washer long predates CVJRS - National Minimum Wage, Auto Enrollment, CTC/WTC/UC Etc. They all have similar work arounds that seem to rely on no-one thinking about it too closely.

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By indomitable
28th Jun 2023 14:57

Like everything else government and it's implementors HMRC do, never clear guidance given in the first place, left to the 'punter' to determine what constitutes work and what doesn't so that taxpayers are left in DOUBT what is claimable and what isn't!!!

HMRC should give CLEAR precise guidance on what constitutes an acceptable level of work and make that guidance EASY to find. Then these cases would not be subject to interpretation.

The whole furlough claim scheme was a 'dogs dinner' along with the 'bounce back loan' scheme

I have no faith any more in government or HMRC to get anything right

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Replying to indomitable:
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By Roland195
28th Jun 2023 15:35

The position being adopted by the Tribunal, ignoring Director's statutory duties, is that no amount of work whatsoever was acceptable - If a furloughed individual was observed to have picked up a piece of paper that fallen from a file stored in their home office & replaced it, this would constitute work (unless it could be argued that the requirements of GDPR would place the company at risk in which case the director was acting within their statutory duties to safeguard the company)

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Replying to Roland195:
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By moneymanager
30th Jun 2023 01:06

When we are all gelocated like chipped dogs, HMRC will be able to ask what said director wasdoing in the home office while furloughed

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By moneymanager
29th Jun 2023 13:50

While big pharma, the one business that should have been shuttered to all our benefits managed to rake in billions.

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