How to avoid falling foul of furlough fraud

With HMRC intent on investigating and prosecuting firms for wrongful payments, it’s vital HR conducts due diligence to ensure no breach inadvertently took place, says Neil Williams

As the Covid-19 pandemic took hold in the UK and businesses were forced to shut down, the government had to move quickly to try to save the economy. The Treasury implemented schemes to help businesses stay afloat and retain their staff including: the Coronavirus Jobs Retention Scheme (CJRS), the Bounce Back Loan Scheme, and the Self-Employment Support Scheme.

Due to the urgent nature of the problem, these schemes were drawn up at great speed and largely without information or advice on the rules governing them. Adding to the confusion, several of the rules had to be altered and/or clarified in the weeks and months after implementation.

Due to these strained circumstances, an environment was created whereby businesses could have found themselves unwittingly breaching the rules, opening themselves up to investigation and prosecution. 

It is thought that up to £3.5bn has been fraudulently claimed or paid in error leading HMRC to signal its intent to aggressively investigate all wrongful payments and prosecute those they believe have committed fraud. Unfortunately, it is likely that many innocent companies will be caught up in this activity. 

How does one avoid a criminal sanction? 

Well, if you discover a problem, it is highly advisable to self-report and to engage in dialogue with HMRC to resolve matters swiftly. Not doing so could stand in the way of the business’s survival and future opportunities or dent its reputation.

It is important to remember not to shy away from the problem or be too scared to face it head on. After all, furlough fraud technically requires more than an over-claim; it requires purposeful dishonesty to make a gain. 

However, identifying the line between criminality and oversight is no easy task, particularly when the rules applying to the furlough scheme have been rushed and changed numerous times. This is why self-reporting and opening that dialogue with HMRC is critical as soon as a discrepancy is flagged.

What should you be looking out for? 

First and foremost, understanding what furlough fraud is would be a good place to start. Examples include:

  • An employer making a claim under the scheme for a non-existent employee;

  • An employer making a claim under the scheme on behalf of an employee without the employee’s knowledge while they continue to work as normal;

  • An employer placing an employee on furlough, but requiring them to continue to work as normal; 

  • An employer misrepresenting the hours an employee has worked to maximise the amount recoverable under the scheme.

While these scenarios when read in black and white appear to be obviously fraud, there are certain cases where, as an employer, you may have made a mistake. For example, the bottom two. It is quite possible that during the first lockdown when the rules were new and unclear, that an employer may have still contacted an employee to carry out some minor work while they were placed on furlough. This will certainly not be unheard of. 

In genuine instances of oversight, HMRC will not claim dishonesty; however, you must self-report. If HMRC finds out at a later date and you have not repaid the monies, then they may well come after you. 

The best thing for employers and HR departments to do at this stage is to conduct internal investigations and due diligence to ensure that no unwitting activity took place, and no claims were falsely made. This can be done by scrutinising communication tools between employees such as email and text messages. 

Perhaps an employee asked another to ‘cast a quick eye over this proposal’ while the latter was on furlough. Something as minor as this would constitute a breach. By self-reporting, you could save yourself a headache in the long term. However, if many breaches are uncovered during an investigation or due diligence mission, we would strongly advise seeking legal advice.

Neil Williams is deputy head of complex crime at Reeds Solicitors