Furlough fraud reports rise by 53 per cent in three weeks, official data shows

Experts urge employers to audit their use of the job retention scheme before ‘HMRC comes knocking’

The number of reported cases of fraudulent coronavirus job retention scheme claims has risen steeply, official figures show, as the government starts to wind down this support.

As of 22 July, HMRC had received 6,749 reports of ‘furlough fraud’, compared to around 4,400 at the end of June. This represents a 53 per cent rise in reported cases in just three weeks. 

The rise came as official figures showed more than 9.6 million jobs have been furloughed as of 2 August, with 1.2 million employers using the scheme. The total value of claims made through the scheme has reached £33.8bn.

An HMRC spokesperson said the scheme was part of a “collective national effort” to protect jobs, and the tax body took any claims of fraud related to it seriously. “We’d ask anyone concerned their employer might be abusing the scheme to please contact us. It could be that you’re not being paid what you’re entitled to, they might be asking you to work while you’re on furlough, or they may have claimed for times when you were working,” the spokesperson said.

While the latest figures have added to concerns about abuse of the scheme, experts warned that many employers might also be inadvertently falling foul of furlough rules. Matthew Sharp, senior associate at Fieldfisher, told People Management he doubted much of the reported furlough fraud was intentional. He said the lack of clarity around the scheme, coupled with employers “rushing to save jobs and plan the future of their business”, was inevitably going to lead to mistakes. 

“If we go back to when the furlough scheme was first launched, employers were encouraged to make use of this 'pay now' scheme to prevent mass redundancies. However, the 'check later' element and what HMRC enforcement would look like was never really clarified,” Sharp said. 

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“As the 'check later' portion of the furlough scheme becomes the new focus for the government, we are likely to see more reports of furlough fraud as employers start to increase checks to ensure they were compliant.”

As of Saturday (1 August), employers were required to pay national insurance contributions for furloughed employees – adding further complexity to the rules of the scheme. This is set to increase again from 1 September, when employers will also be asked to contribute at least 10 per cent of furloughed employees’ wages, going up to 20 per cent in October, the last month of the scheme.

Like Sharp, Joanne Moseley, employment law specialist at Irwin Mitchell, said she sensed most of the mistakes relating to the scheme would be inadvertent and the result of its complexity.

Working out furlough pay was "not for the faint-hearted", Moseley said. She highlighted that some employers might be getting tripped up when applying for the flexible furlough scheme, which allows staff to return to work for part of the week and remain furloughed for the rest. 

"Employers have to work out how many hours each employee usually works and deduct this from the number of hours they have been furloughed by following a series of complicated stages," she said. 

Sharp warned employers to undertake extensive job retention scheme audits now “before HMRC came knocking”. If errors were discovered these should be corrected, a process put in place to ensure it didn’t happen again and HMRC promptly notified, he said.

“The primary penalty [for any inadvertent errors] imposed under the Finance Act 2020 is a ‘failure to notify’ penalty,” Sharp explained. “The consequence of that is that the penalty may be 100 per cent of the income tax charge.”

He added that errors were “inevitable”, but it was a defence to show reasonable steps had been taken to ensure compliance with the scheme. 

A previous poll of 2,000 furloughed employees across the UK found a third (34 per cent) had been asked by their employer to commit furlough fraud by carrying out their normal duties despite their employers claiming from the job retention scheme. A further 18 per cent said they had been asked to work for another company linked to their employer, and a similar number (19 per cent) were asked to cover someone else’s job within their organisation. 

Last month a man from the West Midlands became the first person to have been arrested over suspected furlough fraud. The man was arrested by officers from HMRC on 8 July as part of an investigation into a suspected £495,000 fraud case.