Furlough Fraud

The Government suspects almost £3.5 billion could have been paid as a result of fraudulent claims.

author

James Rowland

Commercial Director James leads Account Management, Sales and Marketing at Neathouse Partners.

Date

05 October 2020

Updated

17 July 2024
3 min read

An introduction to the furlough scheme

The impact of COVID-19 on businesses in the UK is undeniable, and due to the fallout of the global pandemic, the Government has had to take measures to safeguard companies and individuals throughout the crisis.

To do this, the Government launched a catalogue of various grants that were available to help different types of businesses, as well as those who are self-employed.

By far the most popular example of this is the Coronavirus Job Retention Scheme, often referred to as CJRS.

The CJRS is now closed to new entrants and is winding down prior to it ending on the 31st of October. Under the scheme, business owners and employers were able to pay employees if they were unable to work due to the COVID-19 crisis.

The financial support was given in the form of a grant that helps businesses keep their employees "on furlough".

Now that there has been time to review the furlough scheme, the Government suspects almost £3.5 billion could have been paid as a result of fraudulent claims.

CJRS has been essential for keeping thousands and thousands of businesses afloat, but it also comes at a huge cost to the Government, which means they will be vigilantly investigating those that they believe have enacted furlough fraud.In fact, due to the Finance Act 2020, HMRC has a lot more power to investigate, so business owners must make sure they have not wrongly claimed too much under the furlough scheme.CJRS is the most popular COVID-19 support scheme, so in this blog, we will cover the most important parts you need to know to combat unwilling furlough fraud.

What do I do if I received COVID-19 support payments through CJRS that I am not eligible for?

Look, we all make mistakes, and HMRC is willing to compromise with business owners that have made a genuine blunder and quickly look to atone for their errors.If you believe you have made a mistake with your claim, or that your business is no longer going to use the grant to pay for wages, tax, national insurance and pensions contributions, it is time to notify the authorities.The HMRC notification period covers a few different scenarios:

  • 90 days after you first obtained the support payment
  • 90 days after a change in your business meant that you were no longer entitled to the CJRS grant
  • On the 20th of October deadline

Due to the new provisions, CJRS payments are revenue receipts chargeable to the income tax or corporation tax of the employer.This means that the over-claimed funds must be reimbursed within the relevant time period.

For sole traders, this ends on the 31st of January 2022, while companies must settle the debt 12 months from the end of their accounting period.

The implications of failing to declare a COVID-19 support overpayment

Punishment for over-claiming or fraudulent claiming of the CJRS grant is designed by the HMRC to deter would-be criminals, and they are also able to recover the full amount through a tax assessment.This must be repaid within 30 days, and will usually come alongside a penalty fine that could be as high as 100% of the repaid amount.

The Government see the failure to notify HMRC of any overpayment as a deliberate and concealed offence, so there is always the possibility of further legal action.

A few examples of furlough fraud

In order to help you truly appreciate what furlough fraud is, here are a few examples of scenarios that would be deemed fraudulent in regard to the CJRS grant:

  • At any point when furloughed, employees were asked to do small bits of work in order to help your company.
  • COVID-19 support claims were made for employees who no longer work at the company, or have been on maternity leave.
  • A company has been claiming furlough compensation without actually passing this on to their employees.

Because CJRS is coming to an end in October, the Government and HMRC will be on the lookout to spot any fraudulent claims, as they are aware some elements of the legislation may have been abused.

The criminal offences

In order to show business owners that furlough fraud is being treated as a severe issue, the Government has rolled out a selection of offences that an individual could be prosecuted under if found guilty.Fraud is the most popular; however, you can also be investigated, and ultimately prosecuted, for false accounting, conspiracy to defraud, cheating the public revenue, and money laundering.

There is another slightly newer offence of failing to prevent the facilitation of tax evasion, which was introduced under the Criminal Finances Act 2017.As you can see, the potential fallout from a case of furlough fraud can be extremely severe, so it is in your best interest to avoid it completely.

HMRC powers

HMRC has been granted special powers in the pursuit of businesses guilty of furlough fraud and can use legal information and inspections to check the validity of any CJRS claim.Random spot checks will also be used on businesses and sole traders.

The HMRC already has a large amount of furlough fraud information, so they are already in a good position to chase down any offenders.In addition, HMRC may freeze potential offenders' accounts whilst they investigate further.

You can also be arrested and detained by HMRC agents, so there are many ways in which furlough fraud is combatted.

Tips for employers looking to safeguard themselves

We highly recommend carrying out a strict internal audit, because only then will you truly be able to say that you are completely free of any fraudulent activity related to furlough fraud.Furthermore, due to the complexity and shifting nature of the furlough scheme's guidelines, it is always a good idea to seek professional help to ensure you are not guilty of any wrongdoing.

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