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Furlough Fraud – Accidental or Deliberate?

There has been plenty in the media of late concerning potential abuse of the Coronavirus Job Retention Scheme (a.k.a. the furlough scheme, or CJRS) after HMRC received over 3000 reports of fraudulent use of the scheme, where some employers have allegedly instructed their furloughed employees to continue to work.

Two thirds of British private sector businesses have used the scheme since it was announced by the Chancellor of March.  From an initial review of the scheme, HMRC have found that claims made by up to two-thirds of those businesses warrant further investigation.

HMRC acknowledge that there will be genuine mistakes within furlough applications and have promised leniency, however where genuine fraudulent claims are identified, the sanctions could be quite severe.

In this short video blog, Mitchell Charlesworth audit and accounts partner Alex Makinson discusses:

  • The differences between accidental and deliberate furlough fraud
  • How HMRC will be looking to company officers to take recovery action where required
  • HMRC’s legislative stance towards penalties
  • The amnesty period
  • Whistleblowing procedures and the outcome of employee surveys
  • How to not become an accidental fraud statistic.

Transcript

Hello, I thought I would record a short blog on Fraud (accidental or deliberate) and Abuse surrounding the Furlough Scheme, and how HMRC are now looking to investigate employers and take stern action where needed.

HMRC Chief Executive Jim Harra was asked to report to the Commons Public Selection Committee recently, and within his statement he made it very clear what HMRC’s position was.

He acknowledged that the scheme is a magnet for fraudsters and open to abuse by employers, however shared that the department would be looking to protect the exchequers position robustly.

Advising that draft legislation has been incorporated into the Finance Bill to allow HMRC not only recoup payments incorrectly claimed by employers or not used to pay employees, but to apply penalties to anyone who deliberately made an incorrect claim, including specific powers to make company officers personally liability for any charge where a company is unable to repay. Remember deliberate fraud can lead to up to 10 years in prison.

It also offers an amnesty (of sorts) where HMRC will not apply penalties to anyone who notifies them about the error within the next 30 days (or 30 days of Royal Assent of the Bill). That in itself is an indication of how many employers it suspects have abused the scheme.

Now HMRC have set up a dedicated whistleblowing phone number where companies can be reported and they take each tip-off very seriously. As it stands, over 3000 employers have been reported to HMRC since April and that figure is growing every day.

Apparently of claims reviewed by HMRC so far, one-third didn’t warrant further investigation but that leaves the remaining two-thirds being closely looked at. 

Now, employers may have inadvertently made an error, so accidentally committed furlough fraud; such as bringing employees back too soon, or not meeting the 3 weeks’ minimum period, or not restricting the amount claimed to 80%/£2,500 and so on.

We cannot stress enough the need to review your claims given the constant change in guidance since day 1 of furloughing, to ensure those claims don’t contain any errors.

It’s worth mentioning that the ’old’ scheme as I’m going to call it now (that’s up to 1st July) is crystal clear that it does not allow furloughed employees to do any work for their employer.

So that’s not making any money for them nor providing any service to them, other than training, so it’s difficult to see many activities undertaken which will not be deemed work by HMRC.

Now two recent independent surveys have been undertaken; one found that more than 1/3 of furloughed employed had been asked to work by their employers, whilst the other advised that 29% had been told to undertake administrative duties when furloughed.

If these surveys do represent a true picture then you can see why HMRC will be looking to investigate employers for some time to come, given the billions of pounds that this is costing. So that they can recoup some significant amounts of that debt to the treasury. 

I’m just going to finish by saying that we all wondered how the furlough scheme would be policed and we now have our answer (although I’m not surprised, are you?).

Don’t be one of those accidental fraud statistic and speak to your professional advisors, if you have any questions or concerns.

If you have any questions or concerns regarding the CJRS you should not hesitate to contact your usual engagement partner.

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