Her Majesty's Revenue and Customs (HMRC) is preparing to tackle fraudulent and erroneous claims made to the Coronavirus Job Retention Scheme (CJRS or the furlough scheme) and the Self-Employment Income Support Scheme (SEISS) by fast-tracking legislation through Parliament.
HMRC's new enforcement powers will be set out under the new Finance Bill 2020 with the aim of deterring the abuse of the furlough scheme and encouraging further transparency. Importantly, the proposed measures will give participants of the scheme a window of 30 days (which may be extended to 90 days) to self-report to HMRC should there be an error made in the application of the CJRS or SEISS.
Steps HMRC are taking
The proposed legislation will also give HMRC the power to raise Income Tax assessments to recover amounts from the recipient of a SEISS or CJRS payment to which they are not entitled or where a CJRS payment has not been used to pay furloughed employee costs.
HMRC will also have the power to issue a penalty in cases of deliberate non-compliance.
The measure is set to grant powers allowing HMRC to hold company officers jointly and severally liable where a business has become insolvent.
Penalties for breaches which are not notified to HMRC within the 90-day grace period are expected to start at 100% of the sums incorrectly granted. Swift and unprompted self-reporting may reduce penalties significantly and this is financially beneficial to reporting if prompted by HMRC.
The aim of this legislation is twofold: (i) to provide a greater degree of certainty on the tax treatment of the COVID-19 support schemes; and (ii) to provide HMRC with a means to recover overpaid SEISS and CJRS grants and, in cases of deliberate non-compliance, impose penalties.
How we can help
HMRC initially wants participants – businesses and individuals – to admit to any misuse of the schemes by providing a 90-day window of opportunity for beneficiaries to come forward.
Mistakes that could be interpreted as misuse could, for example, be having inadvertently asked employees to carry out tasks whilst on furlough which technically count as "work".
There is both a financial and reputational justification for employers who think that they may have breached the rules to carry out an internal review and act accordingly.
The onus for ensuring notification of non-compliance with the schemes is likely to fall on human resources departments within recipient businesses. They will be required to consider and investigate any potential inadvertent breaches, a process which is likely to be both arduous and costly, particularly against the backdrop of the on-going business uncertainty and economic pressures causes by COVID-19.
While this is a developing area, a number of clients have come to us asking us for assistance in navigating HMRC's approach in other areas, such as enforcement of National Minimum Wage, and we have been helping many our clients navigate the CJRS over the past few months. Our deep understanding of the workings of HMRC combined with the close relationship between the HMRC disputes, and Employment law teams within the firm enable us to confidently tackle these issues.
In short, if you have any concerns or uncertainties about your position, we can apply our experience and expertise to help you resolve any concerns.
The potential for reputational and financial fallout can be navigated with the correct advice and pre-emptive action. Our team specialises in resolving disputes with HMRC while fiercely guarding our clients' interests.
Reasons to act now
The furlough scheme was introduced at a time of heightened anxiety and in unprecedented circumstances.
Unintentional mistakes will have been made by businesses of all sizes. The opportunity available is to consider what mistakes have been made, report them to HMRC in the window, and remove the likelihood of any penalties applying.
If HMRC discover any errors after this date, whether through current/former employee 'tip-offs' or through tax audits, it will be considerably harder to justify the removal of penalties.