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Tough sanctions for UK companies convicted of furlough fraud

Posted on 10 September 2020

Jim Harra, Chief Executive of HMRC, has told the Public Accounts Committee that the UK Government may have handed out up to £3.5 billion of taxpayers' money in fraudulent or erroneous claims under the Coronavirus Job Retention Scheme (the Furlough Scheme); a figure equivalent to 10% of all distributions made under the scheme.

Since the Furlough Scheme was launched in April of this year, some £35 billion has been paid to 1.2 million employers, thereby enabling around 9.6 million workers to keep their jobs during the worst of the pandemic. However, a recent study by academics at Oxford, Cambridge and Zurich universities found that there has been widespread abuse of the system by UK companies. The study found that, in particular, the prohibition on working whilst furloughed has been “routinely ignored". Nearly two thirds of those furloughed reported working from home and of those, one fifth were explicitly told to do so by their employer.

Mr Harra has been clear that it is not the intention of HMRC to "set out to try and fine employers who have made legitimate mistakes in compiling their claims because this was obviously something new that everyone had to get to grips with in a very difficult time”. The Finance Act 2020, which entered into force on 22 July 2020, creates a 90-day amnesty period for employers to notify HMRC of any overpayments under the Furlough Scheme. Following the expiry of this period, a penalty of up to 100% may be imposed. 

Those that have fraudulently abused the Furlough Scheme can expect short shrift. Mr Harra revealed that HMRC are currently investigating 27,000 "high risk" claims and have already received 8,000 calls to their fraud hotline.

HMRC have shown that they are willing to pursue criminal action where appropriate. Earlier this year a man was arrested on suspicion of fraud by false representation, tax evasion and money laundering in connection with claims under the Furlough Scheme. The investigation is on-going and to date, there have been a number of further arrests.

Employers should take heed, particularly in light of recent comments by the Director of the Serious Fraud Office, who has signalled an appetite for pursuing those perceived to have taken advantage of the disruption caused by the global pandemic. In a speech broadcasted via YouTube, Ms Osofsky said that the pandemic has clearly created opportunities for criminals, but that "law enforcement are working across Government to assess and respond to the new threat".

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