The implications of furlough abuse

Richard Fox explains the consequences employers can expect to face if they have intentionally or accidentally misused the job retention scheme

The implications of furlough abuse

During the course of the Covid-19 pandemic our focus and priorities have inevitably changed. When chancellor Rishi Sunak first introduced the coronavirus job retention scheme, the sheer size and scale of the programme took everyone by surprise. In the succeeding weeks and months, we have seen some two-thirds of British businesses using the scheme to support around 9.4 million jobs. But the rub is the cost. It is now approaching £30bn. No wonder the government has confirmed it intends to use “every tool and piece of intelligence to prevent, detect and disrupt fraud” in relation to the scheme.

So here comes the reckoning. There has been a realisation that not everyone has made claims on the scheme correctly. Some have made genuine mistakes, doubtless brought about by the need to process the applications so quickly at a time of real distress for most businesses. But for others, there may have been a more malevolent motive behind the erroneous applications. They may have been made deliberately in the knowledge that government mechanisms will have been under real strain at this difficult time.

What is clear, however, is that the tables are now turning. For a start we have seen the first arrest for furlough fraud. It was of an individual in the West Midlands, who allegedly committed a fraud on the scheme amounting to almost £500,000.

Second, the finance bill has just received Royal Assent. It contains an important amnesty provision. If within a period of 90 days an employer goes back to HMRC to point out any claims that were mistakenly made, they can repay the grant and not incur a penalty. Penalties can be severe – up to 100 per cent of the value of the erroneous claims. Employers should therefore check their furlough applications really carefully at this point, so they are able to take advantage of the offer.

Additionally, it should be appreciated that it is not just a potential HMRC problem that awaits employers that have abused the scheme. The government has made it clear, as has HMRC, that they will pursue corporates and individuals (which includes company officers and employees) through the criminal courts if they have been party to the commission of an offence. Given that it is estimated that more than 180,000 applications were falsely made (although the figure is probably far higher than that), this may be a real threat. There are a number of crimes that may have been committed. These include offences under the Fraud Act 2006, cheating the public revenue, false accounting and money laundering. Significant prison sentences and the risk of being disqualified from acting as a director may await those found guilty.

At the height of the pandemic few will have been thinking of the potential criminal consequences of making false claims to HMRC for unjustified furlough payments. But now that we have moved on from the first period of lockdown when the pandemic was at its height, we have time to deal with what has gone wrong. Employers that are innocent of any malevolent intent need to begin their furlough audits without delay to avoid getting caught up with those who are guilty of criminal intent.

Richard Fox is an employment partner at Kingsley Napley