In March 2020, the government announced their measures to support business’ and employees during the Coronavirus pandemic including the Coronavirus Job Retention Scheme (CJRS). Under this scheme, the government would pay 80% of employees’ wages up to £2,500. Furloughed employees were not to work as they were on temporary leave (furlough) but could find work elsewhere. Over one in four employees are currently furloughed under the CJRS.
The government now estimates that £3.6Bn was paid fraudulently or by mistake under the ‘Furlough Scheme’ and HMRC are now looking into this.
How can employers fall foul of the law?
HMRC suspects a number of fraudulent claims, including and not limited to:
– Employees unknowingly being placed on furlough, and the employers receiving furlough payments to keep for themselves.
– Employers receiving furlough payments but asking their employees to come in as ‘volunteers’.
– Claiming more in furlough payments than employees were paid.
– Continuing furlough payments to former employees.
It is okay if you feel worried about any mistakes you may have made. Maybe you had rushed to place your staff on furlough but are now concerned mistakes may have been made resulting in a pending HMCR investigation.
HMRC are unlikely to go after companies who have made genuine mistakes and opportunities have been given to correct such mistakes before further action is to be taken
How will HMRC know if furlough claims are fraudulent?
HMRC has extensive powers to investigate suspected fraud. They have made over 18,000 requests to access communications data such as phone records and internet history revealing time of calls, location, call length and websites visited, to aid in their investigations. The Coronavirus act 2020 extends HMRC’s powers and the Finance bill 2020 will allow HMRC to peruse company office holders in the case of a business becoming insolvent, with join and several liability. There has also been an increase in the number of whistle-blowers, over 70,000 coming forward to report foul play.
Such powers could be used to investigate whether employers were in contact with employees when they were supposedly on ‘furlough’, indicating whether an employee was working rather than actually on furlough. HMRC will be analysing their data to reveal those who have defrauded the system, those suspected of misusing the furlough scheme will be identified and action will be taken.
What are the consequences of furlough fraud?
HMRC can take two routes.
First is a Civil Tax Investigation. This could result in Clawback of payments, liability and name and shame of directors as well as a penalty.
Second route is a Criminal Tax investigation. This could result in a raid and arrest, formal police interview under caution, prosecution at the Magistrates’ Court, trial at the Crown Court and a publicly shaming in the media.
An investigation into furlough fraud is also likely to lead HMRC to investigate other possible fraudulent behaviour. As HMRC looks to increase enforcement activity, a number of companies will be worried about an investigation, and these businesses will be looked into by HMRC. It is unlikely those convicted will get much sympathy from the public for defrauding the tax funded scheme.
A man from the West Midlands suspected of £495,000 furlough fraud was the first to be arrested. Continued efforts to by HMRC has also led to an accountant being arrested on suspicion of £70,000 furlough fraud.
Companies, directors and individuals including accountants can all be investigated. The sentence for defrauding the system can be up to 10 years in prison and an unlimited fine.
What should I do if I think I made an incorrect furlough claim?
Incorrect claims may have been made in error in filing for furlough. In a rush, admin errors may have been made and incorrect details submitted. If you are worried about an impending HMRC investigation or are being investigated by HMRC, it is important you seek expert advice. Do not wait for HMRC to come to you first.
Fraud is a serious matter and can carry serious repercussion. At Mi Solicitors, we specialise in fraud and will be able to advice you with specialist legal expertise.
We can help minimise any impending damage and even avoid any HMRC prosecution.
As well as help you avoid you filing a money laundering report under the Legal Professional Privilege which only a solicitor can provide.