The Coronavirus Job Retention Scheme (CRJS) – more commonly known as the furlough scheme – has supported businesses with over £67.4 billion to help pay employee wages through the pandemic. Due to the extent of their support, HMRC are cracking down on a number of these claims to review their legitimacy.

HMRC have begun a campaign of sending businesses “letters of concern” where they have suspicion of wrongful claims being made.  Some of these may be triggered by an HMRC algorithm, while others are the result of HMRC having been “tipped off”. Whether the tipping off was based on fact or someone, often disgruntled employees, causing a nuisance, HMRC can’t tell until they open a check into the company.

Originally, HMRC had expected to investigate 15,000 claims but with the formation of the ‘Task Force’ due to the number of registered fraud causes, this expectation has doubled to 30,000.

We are sure that the vast majority of our clients have nothing to fear if such a letter is received.  And to help we’ve put some detail together to help you prepare if you do receive a letter from HMRC, what to expect and how to minimise the impact of an investigation.

The types of furlough fraud – will you receive a penalty?

There are three types of furlough fraud:

  1. A legitimate claim has been made and there has been an error in calculations
  2. A legitimate claim has been made but the claims have been overstated
  3. A false claim has been made

HMRC are aware that the majority of employers have made use of the furlough grant and some genuine mistakes will have been made, so they will be somewhat reasonable through these checks where errors are unintentional.

Some common errors may include:

  • Over-payment of Employers National Insurance – There have been some furlough claims where HMRC have paid Employers National Insurance when none was payable by the employer. This is a common error where the Employers Allowance has been claimed but not considered in the furlough claim. HMRC can claw back this over payment with interest and penalties.
  • Declaring furlough grants on your accounts – Furlough grants should be declared separately on your accounts, shown as Other Income, and not simply netting off with the salary costs. There is a legal requirement for businesses to disclose the furlough grant on the year-end tax returns or there could be additional penalties from HMRC.
  • Complications with calculations – There are many cases where the rules at the very start of the scheme were not clear on how to treat employees. For example, those with employees who work adhoc hours or where they had unusual pay or expected commission arrangements. Even when the rules were clear, the calculations were often complex requiring a year or two of payroll data to be analysed. As long as you can show your calculations were reasonable and based on your best knowledge, these will fall under unintentional error category. Being up front with your workings is always the best way to show HMRC you are cooperating and limit any exposure to increased charges.

What to do if you receive a letter

If you do receive a “letter of concern” from HMRC, it’s important you deal with it straight away. There’s a lot of information to digest over 20-pages which can be very overwhelming. We’d suggest you break it down and note the deadlines you need to meet.

The deadlines are likely to be relatively imminent, so if you are going to struggle to reply in full on time, write to HMRC requesting more time to formulate a full reply. Usually, HMRC are willing to grant more time. The worst thing you can do is give them the silent treatment and then be late. Communicating and showing willingness to cooperate are generally best practice here.

If you are going to reply via email, ensure you read the information sheet “Corresponding with HMRC electronically”.  And be careful with replies as there are many scammers pretending to be HMRC so you don’t want to get duped!

The initial letter will likely require you to collate a significant amount of supporting information, ranging from the furlough letters you sent to your employees, to your support calculations and pay information. You must provide this information in a full, clear, and concise manner. HMRC may request further information as the enquiry progresses.

If genuine errors in calculations have been made, it’s important you clearly define how you got this calculation so HMRC can see how this differs from their own calculation.

For all our clients we recommend that you let us know if you receive one of these letters as soon as possible. Even if we have not been involved in your furlough claims as we will be able to help you respond.

Staying squeaky clean

Even if you haven’t received a letter, for most employers there’s a 6-year window in which HMRC can investigate how you have administered the furlough scheme. It is important that you ensure you are keeping clear records that will be understandable well after the last claim is made.

If you’re worried…

If you have any concerns that something is wrong or that an error was made in any of your furlough claims there are ways of making good these issues and preventing a “letter of Concern” arising. HMRC are more much more lenient where the taxpayer declares an error and makes corrections voluntarily rather than when HMRC find it under enquiry.

If you’re worried about anything, give us a call on 01474 853 856 or email discovery@a4g-llp.co.uk.

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