Her Majesty's Revenue and Customs (HMRC) has introduced legislation to tackle erroneous and fraudulent claims made to the Coronavirus Job Retention Scheme (CJRS, or the furlough scheme) and the Self-Employment Income Support Scheme (SEISS) by fast-tracking the Finance Bill 2020-21 through Parliament.
HMRC's new enforcement powers are set out under the new Finance Act 2020, which was given Royal Assent on 22 July 2020, with the aim of deterring the abuse of the furlough scheme and encouraging further transparency. Importantly, the Finance Act 2020 confirms that notification period or "amnesty period" is for 90 days. In accordance with HMRC's Guidance, you must notify HMRC by the latest of either 90 days after the date you receive the grant you were not entitled to or the 90th day after the day on which the legislation was passed (i.e. 20th October 2020),
Steps HMRC are taking
The legislation gives 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 also has the power to issue a penalty in cases of deliberate non-compliance.
The legislation grants 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 treated as deliberate and concealed and 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 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 and investigations 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.
The 90 day period began on 22 July 2020 and employers are being urged to consider claims made under the scheme before the end of the amnesty period. 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.