There’s no denying that the Coronavirus Job Retention Scheme – better known as the ‘Furlough Scheme’ – was a lifeline for many businesses and their employees. As of 13th December 2020, 1.2 million employers had furloughed 9.9 million jobs and claimed £46.4 billion. Little wonder that HMRC is now keen to ensure furlough rules are being properly enforced.

According to Lexology, some £3.6 billion in furlough payments have been claimed in error so far. An estimated £2 billion of this has been stolen by criminal gangs. An amnesty for organisations that overclaimed expired on 20th October 2020.

Penalties for inaccurate Furlough Scheme claims 

If an organisation claims Furlough Scheme grants it isn’t entitled to, then HMRC can enforce penalties. Not only can they recover the full amount via a tax assessment (which must be paid within 30 days), it can also charge a penalty of up to 100%.

In cases of deliberate fraud, HMRC can open a criminal investigation. This can lead to conviction for a whole range of serious offences. These include fraud by false representation, false accounting, conspiracy to defraud and cheating the public revenue. It’s also important to note that HMRC can pursue individual company officers or a partnership’s individual partners if an organisation becomes insolvent.

HMRC is enforcing the furlough rules now

You’ve probably already read about various cases in which HMRC has pursued suspected cases of furlough fraud. In East London, two people were arrested in September 2020 in a £70k fraud investigation.  Two months earlier, a West Midlands man was arrested on suspicion of defrauding the public purse of almost £500,000. These cases are just two among hundreds so far.

HMRC investigators also have some major resources available to aid their investigations. According to City A.M., in 2019, HMRC made 18,464 requests to access communication records such as phone logs and web browsing histories. It’s not difficult to imagine investigators scouring phone records for evidence of regular calls between employers and supposedly furloughed employees.

HMRC ‘virtual visits’

We have heard that HMRC is currently conducting ‘virtual visits’ on employers who have made Furlough Scheme claims. The questions below were recently asked by HMRC after getting in touch with one such employer:

  • Did you read the guidance before making the claim?
  • How was the business affected by the pandemic?
  • What type of business is usually carried out?
  • When did the business commence trading?
  • When did the business register for PAYE online?
  • How many people were employed in the business?
  • Who was still working during the pandemic?
  • When were wages paid before March 2020?
  • Did the business discuss with employee re furlough?
  • Did the business issue a furlough letter ?
  • How was the CJRS grant paid?
  • How was the CJRS monies paid to the furloughed employee?
  • Can you provide bank statements showing payments to employee?
  • Who was responsible for making the CJRS claim?
  • Who runs the payroll?
  • Was the furloughed employee contacted while on furlough?
  • If so, how were they contacted and how often?
  • Did business top the wages payment from 80% to 100%?
  • Did the business use the HMRC online calculator?

It would appear that these preliminary enquiries are designed to help HMRC decide whether to pursue a more in-depth investigation.

I’ve stuck to the furlough rules. Should I worry?

If you’ve followed the furlough rules and only claimed what you’re entitled to, then obviously there’s no wrongdoing for HMRC to uncover. However, the above questions underscore how vital it is to keep accurate records. If you can’t provide the evidence HMRC asks for, you could be opening your organisation up to a more in-depth investigation.

We strongly recommend that any business that has used the furlough scheme uses the questions to make sure it has all its paperwork in order. That way, when the taxman takes an interest in you, you’ll have all the evidence you need to prove your Furlough Scheme claims were accurate and lawful.

As always, if you’re a THP client and you’d like any help or advice on getting your Furlough Scheme documentation in order, please get in touch. We’d be delighted to help.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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About Samantha Rowe

Sam’s title is Operations Manager, but the title itself doesn’t truly convey the variety of what she does for THP.  From administrative tasks to payroll, strategic business planning, and office systems and procedures, Sam’s primary skill lies in multitasking.

Sam’s journey began as an office junior with George Nottage (now merged with THP), and she soon learned skills in payroll and bookkeeping, and then gained experience as a PA to the Directors, and as Administration Manager.

At the moment, Auto Enrolment is an area that has a key focus for Sam, and for THP as a whole.  “The question I’m asked the most by clients just now is, ‘How will auto enrolment affect me?’ And the answer is, no matter how big or small you are, you will absolutely be affected by the Auto Enrolment regulations. I’d encourage you to start thinking about it now, and to look at your payroll software to make sure you’re ready.”

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