HMRC seeks powers to investigate furlough fraud

17 Jun 2020 By Francis Churchill

Employers urged to ‘check and double check’ claims, as bill being fast tracked through parliament proposes giving firms 30 days to admit errors

Employers that think they may have accidentally misused the furlough scheme could be given a 30-day amnesty to admit their mistake under a draft bill to tackle furlough fraud, which is currently being fast tracked through parliament.

The draft legislation will give HMRC the power to check grants made to employees through the job retention scheme have been used correctly to pay workers’ wages, and to ensure employers have not been overpaid furlough reimbursement.

It would allow HMRC to reclaim through income tax assessments any furlough money overpaid to employers or not spent on wages as intended. And any organisation caught deliberately using furlough money for anything other than its intended purpose – so-called furlough fraud – would face a financial penalty.

“The penalty will only apply if the person fails to notify HMRC about the situation within 30 days,” the draft bill said.

The bill would give HMRC the same powers to vet and reclaim payments made to self-employed individuals through the self-employed income support scheme.

The legislation, which is part of the finance bill 2020, could be passed as early as July.

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Dawn Register, partner in tax dispute resolution at BDO, said the bill was a sign that the government was “gearing up to tackle incorrect and fraudulent claims” made through the various coronavirus support schemes.

“For those where HMRC suspects fraud, we can expect serious investigations,” Register said, noting that the draft legislation included powers to pursue company office holders where businesses became insolvent. She also expected HMRC to start following up on whistleblowing claims of furlough fraud, which appeared to be on the rise.

The government said it had received 1,868 such reports as of the end of May – more than double the 795 reports received by the middle of the month – and independent whistleblowing organisations have also warned of an increase in calls relating to furlough fraud.

Charity Protect said last month that 36 per cent of coronavirus-related calls taken by its advice line since the start of the pandemic had involved employers fraudulently taking advantage of the government scheme, either by forcing staff to continue working despite paying them through the furlough scheme, or by claiming furlough funding for staff without their knowledge while they were still being asked to work.

Not all misspent furlough money will have been a case of deliberate abuse, however, said Register. “For business owners, many of whom may have implemented claims in a rush at the start of lockdown, now is the time to check and double check the amounts are right,” she said. “Making sure the paperwork is accurate and government guidelines are adhered to is key.”

As of June, 9.1 million jobs had been furloughed under the job retention scheme, at a cost to the taxpayer of £20.8bn. Another 2.6 million claims had been made through the self-employed income support scheme, at a cost of £7.6bn. 

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