Furlough fraud penalties confirmed

HMRC has announced the potential penalties that can be imposed on employers who commit fraud under the Coronavirus Job Retention Scheme.

The Job Retention Scheme was put in place to support employers who were not able to operate as normal due to the pandemic. Based on information from the Experimental Official Statistics publication produced with HMRC’s furlough claims data, the scheme has supported 9.4 million employees thus far, with assistance totalling £26.5 billion. However, some employers have likely overclaimed and may face sanctions if this is not reported and rectified.

The Government has explained that the following actions constitute an overclaimed furlough grant:

• Any amount the employer was not entitled to receive; or
• Any amount the employer is no longer entitled to receive after a change in circumstances – eg an employee whose monthly wages are being claimed for under the scheme is no longer employed by the employer but claims are still being made for said employee

The Government has introduced legislation to aid in the recovery of overpaid monies. HMRC’s concern is to address non-compliance with the scheme but are not obliged to look into ‘innocent errors’ in their approach to tackling this issue. However, employers will not be charged a penalty if they did not know of the overpayment at the time it was received or at the time that their circumstances changed and if it is repaid within the following time period:

• Companies will have until 12 months from when their accounting period ends to rectify errors
• Sole traders or partners will have until 31 January 2022

Whilst errors can be rectified by either contacting HMRC if no further claims are being made under the scheme or by notifying HMRC of the overclaimed amount in a next claim, failure to report this can incur such penalties as follows:

• Income tax charge – full overclaimed amounts may be recovered if HMRC make a tax assessment for the amount overclaimed, of which payment of the assessed amount will be due 30 days after the assessment (otherwise interest will be charged on the tax from day 31)
• Company officers can be made personally liable to pay the tax charged on overclaimed grants in the case of insolvency – if officers of the employer knew of the overclaimed grant, or tax incurred on the grant, but this cannot be recovered from the company
• 100 per cent penalty for failing to notify HMRC, within the below notification period, that the employer is chargeable for income tax on an overclaimed furlough grant
• Details of employers that deliberately overclaim may be published
• Partners will be jointly and severally liable for any overclaimed grants repayable

If employers repay monies overclaimed, this will prevent any potential tax liability relating to the overpayment of the furlough grant. Notification of any overclaimed grant payments need to be made within any of the following notification periods:

• 90 days after receiving the overclaimed payment
• 90 days after the day circumstances changed
• 20 October 2020

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