More than one in four UK employees (approximately 9.1 million people) are currently furloughed under the Government’s Coronavirus Job Retention Scheme (the “Scheme”), at a cost of almost £20.8billion. A further 2.6 million people have claimed under the Government’s Self-Employment Income Support Scheme (“SEISS”) at an additional cost of £7.5 billion. Yet allegations of misuse of the furlough scheme are already surfacing leading HMRC to warn companies that should misuse be identified, they will be asked to repay the funds and could face criminal proceedings.
Whilst furloughed staff remains employed by a company, they are placed on temporary leave (‘furlough’) and should not carry out any remunerative activity for that employer. Furloughed staff can, if they so choose, take on new work elsewhere. During the furlough period employers can claim up to 80% or £2,500 of each furloughed employee or worker’s usual salary, whichever is the lower sum. The employer can determine whether they will top up the remainder of the furloughed worker’s salary so that they receive their full income.
HMRC has recently announced that it had received over 1,900 reports of fraudulent furlough claims from company employees which it is in the process of now assessing, and has urged the British public to continue to come forward to report companies if they have concerns that companies are dishonestly claiming and abusing the furlough scheme. HMRC has stressed that where there is egregious abuse which could constitute fraud on the UK Government, it will not hesitate to take criminal action.
Abuses highlighted include the following:
- Employers who place staff on furlough (with or without the employee’s knowledge) and then claiming under the Scheme whilst make staff work as normal;
- Employers asking employees to take a 20% reduction in pay whilst the company recovers the remaining 80% from the scheme and whilst employees continue to work as normal;
- Companies asking staff to work as volunteers for their business whilst the Company receives furlough payments under the Scheme.
Whilst the Coronavirus Act 2020 has already extended HMRC’s powers, the Government is currently preparing draft legislation to be added to the Finance Bill 2020 (which is currently working its way through Parliament) and will allow HMRC to pursue parties who have broken the rules governing furloughing, including powers for HMRC to pursue company office holders in the case of businesses becoming insolvent, with joint and several liability. The new legislation is set to receive Royal Assent in mid-July and is expected to introduce a 30-day window for self-declaration of a mistaken application, providing any company or individual the ability to repay the furlough cash or loan back without penalty. Following this deadline, should HMRC consider that an undeclared mistake has been made, then it will launch an investigation, seeking the accused to demonstrate that they have not broken the rules under the Scheme or SEISS.
The tax authority has, however, stated that it will show leniency where a “genuine mistake” has been made and will only use its new powers in the most serious of instances of abuse of the furlough scheme. HMRC has said that the new rules will only be used in the most egregious cases and in cases where amounts are deliberately being over-claimed with the officer’s knowledge, and in case where a company is either insolvent or in serious risk of insolvency, and therefore there is a possibility that the company will not be able to pay its tax liability.