HMRC prepares to take action for abuse of the furlough scheme

Updated: 5th November 2020

The Coronavirus Job Retention Scheme (CJRS) was the standout measure among the raft of initiatives introduced by the government in the wake of the Covid-19 pandemic. Over 1.1 million companies across the UK took advantage of the ability to furlough some, or all, of their employees as the country was put into lockdown this spring. Latest figures show over 9 million people have been put on furlough at some point since the scheme was introduced in March.

Estimated to have already cost the government over £20bn, this amount is likely to rise considerably by the time the programme stops at the end of March 2021.

Identifying employer abuse of the furlough scheme

With the CJRS in the process of being wound down before coming to an end for good at the end of March 2021 the government are now turning their attention to identifying those companies who have falsely made claims for reimbursement of staff wages during this time.

Abuse of the system includes forcing employees to continuing working on a part-time or ad hoc basis for the company despite being declared as furloughed, while other reported cases include those where employees were not even told that their employer was claiming reimbursement of their wages under the CJRS. There are also fears that some companies may be claiming furlough for ‘ghost’ employees who may not actually work for the company at all.

Furlough fraud represents an exploitation of employees, as well as a system set up to help companies through this period of unparalleled business interruption. With billions of pounds being paid out through this scheme, HMRC are now gearing up to penalise those who have abused the system.

What does the new legislation say?

Legislation is currently being rushed through and is likely to become law in early July as part of the Finance Bill 2020. Penalties for those found guilty are likely to include fines for companies, while directors of companies which have subsequently been liquidated could face personal liability for the falsely claimed furlough costs. Imprisonment for convicted fraudsters is also a possibility as exploitation of the CJRS amounts to defrauding the Treasury.

The key term within the legislation is ‘deliberately’, with contraventions including ‘deliberately making an incorrect claim’ and ‘deliberately not using the money to reimburse wage costs for furloughed employees.’ This should provide reassurance for companies that have abided by the rules. However, as many claims were submitted in a rush shortly after lockdown measures were announced, companies are advised to double-check that the claims they have submitted are correct and to rectify any errors they may contain.

Employers have been given 30 days from when the legislation comes into force to come clean to HMRC about mistakenly claiming – whether accidentally or deliberately – in exchange for the opportunity to right their wrongs by repaying the money falsely claimed, without being subject to additional penalties.

The scale of furlough fraud

It is estimated that up to 34% of employees have been asked by their bosses to work while being furloughed, and HMRC has already received in excess of 3,000 claims – mainly from employees – of abuse of the furlough scheme.

This is likely to be just the tip of the iceberg; however, in many cases, employees will be unaware they have been falsely declared as being furloughed, while others will fear the repercussions of whistleblowing in this way.

Random spot checks are also likely, therefore, to be employed to check for instances of non-compliance from unscrupulous companies who have not already been flagged up by way of the reporting system.

Furlough fraud and financial distress

For companies across the country, the past few months have been extremely challenging, with many now fighting for survival as a result of the enforced interruption to business. Penalties for abuse of the furlough scheme could compound the financial problems already being faced, taking these companies one step closer to insolvency.

When insolvency threatens, time is very much of the essence in order to protect creditors and stem further losses and advice should be sought as soon as possible.

78 Regional UK Offices

Find your local Begbies Traynor office and speak to an adviser today.

Find your Local Office
0800 063 9221

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
0800 464 0871

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
0161 837 1700

Call our Confidential Advice Line. Calls to this number are free of charge.

Call us now...
Request a Meeting

We invite you to come and discuss your enquiry with us at your convenience.

Request a meeting...
Coronavirus pushes financially distressed companies over the half-million mark
Number of businesses in significant distress stands at 509,000 – the highest number measured by the Red Flag Alert research
Read More →
 
BTG Advisory accelerates growth with appointment of four new partners to its London office
BTG Advisory, the boutique advisory arm of Begbies Traynor Group announces the appointment of four new partners to its Canary Wharf office
Read More →
 
Eighty jobs saved with £1m sale of engineering business
South Yorkshire company Newburgh Precision rescued through administration
Sale enables 75-year-old business to continue trading
Read More →
 
Join thousands of professionals by signing up for our updates
Analysis and Opinion from our Partners
Top Industry News
Register Now →
 

Advice you can trust

We are accredited by the following industry leading organisations

Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ICAS | The Institute of Chartered Accountants of Scotland

Contact the Begbies Traynor team

or Find your Nearest Office

Here at Begbies Traynor Group we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See PRIVACY POLICY

Processing...