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HMRC Investigate Thousands of Businesses for Furlough Fraud
HMRC has stated that it is looking into around 8,000 reports of furlough fraud received through its anonymous hotline.
While the Coronavirus Job Retention Scheme (or Furlough Scheme) has helped millions of businesses keep their employees on the payroll throughout the Coronavirus/Covid-19 pandemic, some businesses and their owners have been accused of abusing the Scheme and defrauding the taxpayer of hundreds of thousands of pounds.
HMRC has stated that it will take all possible steps to claw back misappropriated furlough payments and will even take criminal action against the worst offenders. The first arrests were made in July in relation to fraudulent furlough claims of £495,000.
HMRC claims that it will not penalise any business which makes a genuine mistake when claiming under the Furlough Scheme and will work with them to rectify the situation. There are therefore plans to introduce a generous 90-day ‘amnesty’ period during which businesses must own up to any errors or they could face legal action.
What is furlough fraud?
The Coronavirus Job Retention Scheme (also referred to as the Furlough Scheme) was introduced in March 2020 to help businesses cope with the fallout of the Covid-19 pandemic and nationwide lockdown. Under the Scheme, businesses can place their employees on leave while claiming a proportion of their salary back from HMRC. To date, over a million employers have furloughed around 10 million employees. It is estimated that the Scheme will cost the Government around £60 billion.
Given its enormous costs, it isn’t surprising that HMRC are taking stringent action to recover payments from businesses that were not entitled to claim under the Scheme or that overclaimed.
Furlough fraud occurs where a business claims money from HMRC under the Furlough Scheme to which it is not entitled. Examples of furlough fraud include:
- Claiming money for an employee who is still working
- Overclaiming for an employee
- Asking an employee to ‘volunteer’ for the company while on furlough, for example, by doing admin work
- Becoming aware that their employee is working while on furlough but does not take steps to stop them
- Claiming for an employee who do not exist
- Hiring an employee for the purpose of claiming under the Scheme
- Backdating a furlough application to cover dates the employee was actually working or was not yet hired by the company
- Continuing to claim payments after an employee leaves the company
- Keeping payments which were validly claimed but where circumstances have subsequently changed, for example, where an employee leaves the company and is no longer entitled to the money
HMRC’s powers to claw back furlough payments
Where a business receives furlough payments to which it is not entitled, HMRC has the power to impose a 100% tax bill to claw back every penny of the funds. It can also impose penalties on businesses which knowingly misappropriated funds of up to 100%.
Where a business deliberately sets out to dishonestly defraud HMRC, it has the power to open up a criminal investigation and prosecute the business and its owners for crimes such as:
- Fraud by false representation
- Money laundering
- False accounting
- Conspiracy to defraud
- Tax evasion (cheating the public revenue)
- Facilitating tax evasion
Furlough fraud penalties
A business or person accused of a furlough fraud offence could face a range of serious criminal penalties (in addition to HMRC’s powers to impose financial penalties and tax charges). For example, the following are the maximum sentences a person could receive for various furlough fraud offences:
- Fraud by false representation – up to 10 years’ imprisonment, a fine, or both
- Money laundering – up to 14 years’ imprisonment, a fine, or both
- Conspiracy to defraud – up to 10 years’ imprisonment, a fine, or both
What about businesses that made valid mistakes?
HMRC’s powers are broad and wide-reaching, so what about businesses that make a genuine mistake when claiming furlough payments? The rules of the Furlough Scheme are complex and have changed several times since it was introduced; coupled with the fact that no business has ever faced this type of situation before, it is not surprising that some businesses will have made errors. These businesses could face HMRC action regardless of their intentions.
However, HMRC has stated that it does not intend on mercilessly pursuing businesses that have made honest mistakes; it would prefer to save enforcement action for serious fraudsters who deliberately set out to defraud the tax payer. Nevertheless, the cost of the Furlough Scheme is simply too big to overlook errors. The Government has therefore found a balance – it has introduced a 90-day ‘amnesty’ period; businesses must notify HMRC of any mistakes by the latest of the following dates:
- 90 days after the business received the Furlough Scheme payments to which it is not entitled
- 90 days after the date circumstances change which means the employer is no longer entitled to keep the payments
- 20 October 2020
Once notified, HMRC will assess how much the business was overpaid and request repayment within 30 days. If the business does not repay within 30 days, interest starts to accrue and HMRC can impose additional financial penalties.
If the business knowingly does not notify HMRC within 90 days, HMRC will impose tax penalties and may start criminal proceedings for furlough fraud.
Get expert advice about furlough fraud from specialist criminal defence solicitors in Bournemouth
If you are concerned that you may have made an error when claiming under the Furlough Scheme or you are facing investigation or prosecution for furlough fraud, get in touch with our expert criminal defence solicitors by giving us a call at our offices in Bournemouth, emailing mail@renshawderrick.co.uk or by filling in our online enquiry form.