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The much relied upon furlough scheme came to an end last week, and now it seems HMRC are ramping up their activities in relation to furlough fraud investigations making it imperative claims are checked for any inaccuracies to avoid potentially hefty penalties.

Faith-RossThe coronavirus job retention scheme (CJRS) was introduced to help business through the pandemic but as all good things must come to an end, so HMRC are now expected to focus on recouping overclaimed amounts.

Given the speed and urgency at which the CJRS was rolled out and the fact businesses had to grapple with with the complex rules, there is a significant risk that businesses have made mistakes in the amounts they have claimed.

The most common ways errors are likely to have been made are as follows:

  • claimed furlough pay from HMRC in respect of an employee who had continued to work and was not informed they were furloughed;
  • misrepresented the facts within their claim to increase overall amount claimed; or
  • calculated the elements of the furlough claim incorrectly, from the calculation of reference pay to the current month’s furlough hours.

Initially, HMRC merely underlined the importance of businesses complying with the rules and whilst this yielded results in the form of voluntary overpayments being declared, it is thought that around 20% of firms have not checked their claims for errors and up to 10% of the total claimed through the scheme is thought to have been claimed incorrectly.

As a result, 30,000 nudge letters have been sent by HMRC to businesses encouraging them to review their claims and again ‘voluntarily’ return overclaimed amounts. Whilst honest mistakes are easily made in such difficult times, HMRC’s view is likely to be that there will have been at least 3 instances to get things right being the initial claim, replying to HMRC’s nudge letters and again when completing their tax return. Therefore, the next stage after receiving a nudge letter is likely to be a full blown non-voluntary fraud enquiry.

Unlike other parts of legislation, the CJRS legislation indicates that any inaccuracy can be treated as ‘deliberate and concealed’ if suitable steps haven’t been taken to correct any inaccuracies, which attracts the highest levels of penalty of up to 100%  of the amount overclaimed.

Where fraud is suspected, and HMRC have a great deal of information from a variety of sources (including disgruntled employees) on this, it is expected that businesses will receive a letter under HMRC’s contractual disclosure facility (COP9) to let the recipient know that they are suspected of deliberate fraud. This letter offers the recipient protection from criminal prosecution if they come completely clean by disclosing all tax errors over the past two decades, including across the whole furlough period, and repay the amount owed.

To prevent this nightmare situation arising, it is therefore imperative that businesses take the time to check their CJRS claims and make a voluntary disclosure to HMRC if any errors are found to reduce the risk of significant penalties or fraud investigations. We would be happy to assist in checking CJRS claims, and indeed have done so for a number of larger employers already. Should things become more serious, we also have our new Tax Disputes ResolutionTax Dispute Resolution specialist team at hand to support those who receive a COP9 letter.

Written by Faith Ross, Manager, Claritas Tax.

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