Employers have just days to ensure that they correctly calculated their furlough scheme claims or face an investigation from HMRC.
The deadline to correct mistakes is Tuesday, 20 October and failing to make checks could result in penalties.
The tax authority claims £3.5bn in payments under the Coronavirus Job Retention Scheme (CJRS) were claimed erroneously or fraudulently. It says it is looking into 27,000 employers that it believes claimed too much.
As CJRS is wound down this month, HMRC is gathering evidence before investigating the companies it believes wrongly claimed under the scheme. HMRC has already started sending targeted letters to employers whose claims they are suspicious of.
These cases have been identified through the tax authority’s own risk analysis as well as from calls made to its CJRS Fraud Hotline. Around 8,000 calls were received by HMRC with reports of fraudulent claims.
What should I do?
If you used the CJRS, our advice is to double-check your claims. Make sure that if HMRC gets in contact you can show evidence as to the furlough scheme claims you made.
Many of cases under investigation are likely to be genuine, innocent mistakes. At the beginning of the scheme, guidance wasn’t always clear or available. There have been at least 98 changes made to the guidance since it began, so confusion is likely.
A recent study also highlighted that many employers were unaware that employees had worked without their knowledge while they were furloughed. This could lead to claims being disqualified, so employers must do all they can to demonstrate that furlough agreements were properly observed.
So, innocently claiming erroneously could be quite a common issue, it seems. Therefore, we advise that you ensure you can demonstrate and evidence your decision making in case you are contacted by HMRC.
They say that they will not impose penalties for innocent errors that are corrected. Nor will they recover grants based on the employer’s choice of pay calculation, provided it is reasonable.
If you are an employer, don’t bury your head in the sand over this. Make sure you make necessary checks now and if you have made errors make repayments. HMRC could impose tough penalties if they discover them, including 50-100% of the over-claimed amounts.
What errors should I look for?
If you are contacted by HMRC regarding erroneous furlough payments, do not ignore it. It appears there are 5 areas that HMRC is focusing on.
- Mistakes in calculations. If you carried out calculations yourself, it is very easy to have made genuine mistakes. For example, ineligible pay elements in reference pay, such as tips or incorrectly calculating ‘usual hours’ for flexibly furloughed employees.
- Ghost employees. HMRC might believe you have employees who are not on their records but have been claimed for.
- Employees working while on furlough. HMRC believes some employees may have worked during the claim period when they were supposed to be on furlough.
- Eligibility of employees. Did all the employees meet the criteria?
- Amended end of year returns. This may cause confusion with HMRC’s records and would create mismatches.
As we have mentioned, if you are concerned and think you have made a mistake, make amends before Tuesday’s deadline.
Employers can offset amounts to be repaid to HMRC against any subsequent claim. If no further claims will be made, the employer can make a direct payment to HMRC.
Do not ignore a letter if you receive one, as HMRC are giving you this opportunity to review and correct mistakes before they intervene. Failing to respond could lead to HMRC carrying out a full investigation, so it’s best to act.
Even if you used your accountant to prepare the claims, you should take this opportunity to ensure your they were valid, as accountants will have acted on your instructions. We prepared furlough scheme claims for a number of our clients. We are confident they were made in accordance with the rules, so long as the information given was correct.
If you are concerned or receive a letter, speak to your accountant. Guidon Group clients should speak to Tony or Kathryn about compliance issues.