HMRC won’t pursue firms making ’legitimate’ furlough errors, it says

Tax authority’s approach seems surprisingly lenient, experts comment, as body estimates up to £3.5bn may have been claimed fraudulently or by mistake  

HMRC will “not set out to try to find employers that have made legitimate mistakes” when claiming through the job retention scheme, it has said, speaking publicly for the first time about the level of furlough fraud that could have been committed to date.

Speaking to MPs on Monday (7 September), HMRC said it estimated that up to £3.5bn payments made through the furlough scheme may have been claimed in error or fraudulently. 

It said that as much as 10 per cent of funds paid through the scheme could have been wrongly awarded. 

The government has made approximately £35.4bn payments through the coronavirus job retention scheme so far, and HMRC estimated that somewhere between £1.75bn and £3.5bn could have been claimed fraudulently or by mistake.

Jim Harra, permanent secretary for HMRC, told the Public Accounts Committee – which examines and holds the government to account for the delivery of public services – that his team had “made an assumption for the purposes of our planning” that the “error and fraud” rate for the furlough scheme would be between 5 and 10 per cent.

“This will range from deliberate fraud through to error,” Harra said. “What we have said in our risk assessment is we are not going to set out to try to find employers that have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time.”

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He said HMRC would be focusing on tackling furlough fraud and abuse of the scheme, and the tax body expected employers to check for errors in their claims and “repay any excess amount”.

In August, HMRC said it would write to selected furlough scheme claimants who it thought may have claimed too much. The tax body said it would start contacting about 3,000 employers a week from 20 August to ask them to check their claims. 

Hartley Foster, head of tax disputes at Fieldfisher, said HMRC had displayed a perhaps surprising amount of “leniency” towards businesses accidentally over claiming from the scheme. But at the same time employers should be in no doubt that HMRC was pursuing investigations “with vigour”, he said – especially considering how quickly the scheme was rolled out, the changing and ambiguous guidance, and the pressure for many employers to utilise the scheme rather than make redundancies.

“While HMRC must be commended for how swiftly it got payments out, it is now clear that it has an additional and very large target – overpaid furlough payments,” Foster said. “On the other hand, the repeated warnings and nudge letters are a form of leniency from HMRC and show that it wants employers to check and come forward rather than HMRC having to identify overpaid or fraudulent furlough payments.”

Paul Holcroft, associate director at Croner, said the level of estimated payment errors through the scheme was unsurprising given the government guidance was “far from clear” in March and April when employers were trying to “work through the concept of furlough for the first time”. 

“We appreciate the government was acting quickly to set up the rules of the scheme but the impact of the constant ‘moving of the goalposts’ means that well-intentioned employers could easily have been caught out,” Holcroft said. 

He agreed though that HMRC’s latest statement was evidence of the body’s willingness to give employers making genuine errors the benefit of the doubt and the chance to correct them. “Arguably this is being acknowledged by the government with the initial soft approach on enforcement; employers have the opportunity to report any errors voluntarily, and it would be wise to do so to avoid official enforcement.”

During yesterday’s meeting with the Public Accounts Committee, Harra also revealed HMRC’s hotline for reporting furlough fraud had received 8,000 calls so far, and the tax authority was investigating 27,000 ‘high risk’ claims.

Official figures show 9.6 million workers have been furloughed through the scheme as of 16 August, with 1.2 million employers claiming support from the government. 

Academics, the government and whistleblowing charities have expressed increasing concerns about the levels of potential furlough fraud committed in the UK. 

Recent research by academics from the universities of Cambridge, Oxford and Zurich found nearly two-thirds of furloughed employees in the UK had continued to work from home while on the scheme, with many explicitly asked to do so by their employer.

The study used real-time survey evidence of UK workers between April and May to find that 63 per cent of furloughed employees continued to work from home during these months. The paper said the prohibition against working while on furlough was “routinely ignored”, with furloughed staff working an average of 15 hours per week. 

Nearly one in five (19 per cent) reported being explicitly asked to do work by their employer, despite this being against the rules of the scheme.