Furlough fraud – avoiding investigation for genuine claims

The first fines have been issued to businesses that have inappropriately claimed from the Coronavirus Job Retention Scheme (CJRS), including one person who claimed £495,000. The government set out a number of rules and guidelines which need to be followed for claims, and employers that have struggled to understand the rules of the scheme, or that did not seek legal advice prior to furloughing employees (including office holders, company directors and agency workers), may have unknowingly failed to comply with CJRS rules, and may therefore risk investigation by the government.

Furlough scheme rules

If you’ve previously claimed, and are continuing to claim from the CJRS flexible furlough scheme which is now in place and may be trickier to manage, as part of the application process you will know that the portal requests the employer to make a declaration they have complied with the rules. Ensure you know what the rules are:

• You ensured that employees furloughed between 1^st March and 31^st July did not work whilst on furlough leave for a minimum of 3 weeks per furlough claim, and that claims were only made for 80% of furloughed employees' usual monthly wage costs, up to £2,500 per month plus employer’s National Insurance Contributions (ER NICS) and employer pension contributions, and no fees, commissions and bonuses were included.
• If you’re claiming from the flexible furlough scheme from 1^st July onwards, where employees are able to return to work part time, you will need to issue a new written agreement to the employee detailing what hours they will work, and each time the number of hours or shift pattern changes, a further new agreement will need to be issued - you will need to keep records of these agreements for 5 years.
• The maximum number of employees you will be able to furlough from July onwards will have to equate to the highest number of employees you have claimed for before 30th June, and furlough claims will no longer be able to made across months.
• You will need to keep a record of all CJRS claims made for 6 years, including all hours worked and all hours furloughed; your calculations; amounts claimed; and reference numbers for each claim.
• From 1st August, for any employees on furlough leave, the government will pay 80% of wages / salaries up to £2,500, however the employer will need to pay ER NICS and employer pension contributions. You will have the responsibility for paying your employees.
• From 1st September, for any employees on furlough leave, the government will pay 70% of wages / salaries up to a maximum of £2,187.50 with employers paying 10% up to a combined £2,500, as well as paying the ER NICS and employer pension contributions. You will have the responsibility for paying your employees.
• From 1st October (the last month that the CJRS will be active), the government will pay 60% of furloughed employees wages / salaries to a maximum of £1,875, with the employer paying the remaining 20% to the £2,500 cap, as well as ER NICS and pension contributions. You will have the responsibility for paying your employees.

 

When do HMRC start investigations?

Once a CJRS claim is submitted via the portal, it takes four to six working days for payments to be made to the business bank account. This provide HMRC with the opportunity to use their testing method for incorrect details or fraudulent claims.

With HMRC being highly alert to the possibility of employers abusing the scheme, they have set up a telephone hotline and an online whistle-blower service for employees to report any employers who have abused / are abusing the scheme. At the end of June 2020, HMRC had received over 3,000 reports of fraudulent use of the scheme including some employers having allegedly instructed their furloughed employees to continue to work.

HMRC may ask employers to provide evidence confirming that employees that have been furloughed would otherwise have continued in employment if the pandemic had not arisen.

What do I do if I’ve made a mistake as an employer?

Whilst HMRC are looking to “claw back” money paid out as part of the CJRS rescue package from fraudsters, the government acknowledges that some businesses will have made genuine mistakes through their furlough applications. As a result, they have reassured that they will show leniency in these circumstances.

Where businesses have come to realise they have made a mistake or have knowingly made a false claim, a new law being passed through parliament will give a 30-day notification period for employers to own up and admit their offence or error.

If you realise you have overclaimed from the furlough scheme, you can do one of two things:

• Identify corrections in your next furlough claim by completing the section that identifies whether you need to reduce the amount to take into account any previous overclaim. The claim amount will then be reduced accordingly. As mentioned above, employers should keep records of all claim details including any adjustments, for a period of six years.
• If you do not need to make any further CJRS claims, then employers can pay any overclaimed amounts directly to a HMRC account via Faster Payments, CHAPS or Bacs. You will first need to contact HMRC to obtain a 14/15-digit payment reference number.

After the initial 30-day grace period, HMRC will begin to pursue the company through their own investigations using criminal and civil powers. Where an employer has broken the CJRS rules, they risk having to pay tax charges and penalties of up to 200% of the amount incorrectly claimed.

What are the Coronavirus Job Retention Scheme Bonus rules?

On 31^st July, further details of the CJRS Bonus were announced by the Government whereby any employer that has made a genuine claim from the CJRS, will be eligible for a £1,000 one-off payment per furloughed employee, if they are retained in employment after the CJRS ends on 31^st October, until at least 31^st January 2021. The rules state that employees must meet the following criteria:

• they were furloughed and had a CJRS claim submitted for them that meets all relevant eligibility criteria for the scheme
• they have been continuously employed by the relevant employer from the time of the employer’s most recent claim for that employee until at least 31 January 2021
• they have been paid an average of at least £520 a month between 1 November 2020 and 31 January 2021 (a total of at least £1,560 across the 3 months). The employee does not have to be paid £520 in each month, but they must have received some earnings in each of the three calendar months that have been paid and reported to HMRC via Real Time Information (RTI) (therefore the employee must have up-to-date RTI records for the period to the end of January)
• they are not serving a contractual or statutory notice period, that started before 1 February 2021, for the employer making a claim.

At LWA, our aim is to support businesses ensuring their compliance to all HMRC regulations including claiming from the Coronavirus Job Retention Scheme. We’ve also successfully assisted many of our Payroll Services clients in making their CJRS furlough claims. We hope that the above information helps you to understand the rules in relation to the scheme, however if you are worried you may have over overclaimed or need further guidance on claiming from the Flexible Furlough Scheme, please contact our team who will be happy to help.