Falling Foul of Furlough Fraud?

While the Government has committed billions of pounds to supporting businesses through the unprecedented challenges of the COVID-19 pandemic, reports of fraudulent claims around furlough leave are rising. By early January 2021, HMRC confirmed they are currently investigating 21,378 cases of suspected furlough fraud.

Whether this has been a deliberate action, or a misinterpretation of the complex rules around the Coronavirus Job Retention Scheme (CJRS), there is an urgent need to rectify matters for any business which has fallen foul of the regulations.

HMRC are looking increasingly closely at claims made through the CJRS, and are performing spot checks on businesses, so it is advisable to ensure that payments are audited now. Any erroneous claims will be found by HMRC, so it is very important that claims and associated information are in order. Businesses must retain all supporting evidence relating to this, including calculations of claims made.

If an error has been made, or the money you received is not to be used to pay wages, tax, NI or pension contributions, you must notify HMRC to avoid a penalty.

The CJRS payments are classified as revenue receipts chargeable either to corporation or income tax and any overpaid amount must be repaid in the relevant time period. The period for sole traders and partners ends on 31 January 2022 and for companies, the period ends 12 months from the end of their company accounting period.

HMRC can recover the full amount by way of a tax assessment, which must be paid within 30 days. A penalty of up to 100% of the CJRS wrongly received can be charged by the HMRC as punishment if they are not told of the over claim within the notification period. The notification period is currently the latest of 90 days after the date of receiving the grant or 90 days after circumstances changed resulting in no longer being entitled to keep the grant.

Repayment and penalties can be sought against any partner in a partnership and officers of an insolvent company.

HMRC can also use the investigation and enforcement powers under the Finance Act 2020 where they suspect deliberate criminal activity has been committed. These can relate to serious offences, including conspiracy to defraud, fraud by false representation, false accounting, cheating the public revenue and money laundering.

Consequences of being found to be in breach of the rules are very serious. Not only is there the reputational damage this could do to a business, but there is also the prospect of a criminal conviction or even imprisonment.

By taking action now to ensure you are entirely compliant with the CJRS rules and in making any claims, you will avert any potential sanctions further down the line.

* Sheila Ramshaw is an associate and regulatory specialist at Sintons. For advice around CJRS compliance, and assistance in preparing for a possible spot check from HMRC, contact Sheila on sheila.ramshaw@sintons.co.uk or 0191 226 3739.

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