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Closing window to act: COVID-19 Furlough Scheme errors

Posted on 8 September 2020

New legislation released at the end of July 2020 allows employers a 90-day 'amnesty window' in which to review and report potential errors relating to the use of the COVID-19 Furlough Scheme.

The 90-day window (applicable until mid-October 2020) allows employers to consider whether any errors have been made, and then take steps to quantify and report this to HMRC.

The main benefits of doing so relate to penalties and publicity: if errors are reported during the 90-day window, there will be no penalties applicable.

Penalties for breaches which are not notified to HMRC within the amnesty period are treated as 'deliberate and concealed' and can be up to 100% of the sums incorrectly granted. It is important to note that such errors could come to HMRC's attention from a HMRC audit (furlough scheme records need to be held for five years) or from disgruntled current/former employees. There have already been reports of smaller organisations that have been accused of 'furlough fraud' by HMRC.

There is likely to be significant adverse publicity if any business is found wanting. 

In considering whether an employer has potentially breached the furlough scheme, it is important to remember the context in which the scheme was introduced. There was limited guidance from HMRC at the time of implementation and it was therefore difficult to know the exact boundaries. It was clear that an employer could not ask furloughed employees to undertake 'work', but what if a furloughed employee chose to contact clients without the employer's knowledge? There are also industry and business specific issues to consider.

Information or allegations may come to light after the 'amnesty window', which would be adverse for employers in terms of penalties and publicity, as well as having to deal with the issues alleged appropriately.

Our experience in matters such as these is to make sure that employers endeavour to put themselves in the best position to minimise their risk and avoid a late and laborious investigation by HMRC, which could also meander into other areas of the employer's tax affairs. It is therefore strongly advisable to consider instructing experts to assist with the assessment and self-reporting process.

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