Furlough Fraud
As of June, 9.1 million jobs had been furloughed under the job retention scheme at a cost to the taxpayer of £20.8bn. Another 2.6 million claims had been made through the self-employed income support scheme, at a cost of £7.6bn.
The furlough scheme was initially due to run until June, but Chancellor Rishi Sunak confirmed it will continue until the end of October with employers contributing towards furloughed workers’ wages from September.
However as of the end of May, the government had received 1,868 such reports relating to furlough fraud; more than double the 795 reports received by the middle of the same month. Independent whistleblowing organisations have also warned of an increase in calls relating to furlough fraud; something HMRC have noticed is on the rise.
Employers that think they may have accidentally misused the furlough scheme could be given a 30-day amnesty to admit their mistake under a draft bill to tackle furlough fraud, which is currently being fast tracked through parliament.
Under the proposed legislation, HMRC will be given powers to investigate grants made to employees through the job retention scheme to ensure: (1) they have been used correctly for workers’ wages and; (2) employers have not been overpaid furlough reimbursement.
The draft legislation explains that the new HMRC powers will allow them to reclaim any furlough money, overpaid to employers or not spent on wages as intended, via income tax assessments.
Financial penalties will also be handed out to any organisation caught deliberately using furlough money for anything other than its intended purpose. The draft bill then goes on to say that the penalty will only apply should the person fail to notify HMRC about the situation within the 30-day period.
It’s also noted in the bill, that HMRC will be given the power to ‘vet and reclaim’ payments made to self-employed individuals through the self-employed income support scheme.
The draft legislation, which is part of the Financial Bill 2020, could be passed as early as July. You can find the proposed bill here.
Whistleblowing support lines have noticed a 36 per cent rise in coronavirus-related reports since the start of the pandemic involving employers using the government scheme fraudulently. Methods such as forcing staff to continue to work despite paying them via the furlough scheme, claiming furlough funding for staff without their knowledge whilst still being asked to work, or placing staff on furlough and hiring temporary employees at a lower wage in their place allowing the company to carry on operating.
HMRC and whistleblowing companies understand that not all misspent furlough money will have been the cause of deliberate abuse. The initial rush at the start of the pandemic will have seen business owners acting swiftly to ensure their employees were supported via the scheme. HMRC are using the amnesty period of 30 days to allow employers to ‘check and double check’ that the paperwork is accurate, government guidelines are adhered to and amounts are correct and give companies a chance to review their claims.
It is worth remembering that HMRC have the right to retrospectively audit employers regarding all aspects of any claim under the job retention scheme. There is a risk that an employer will be held in breach of the scheme should any foul-play be found, where they may then be liable to repay any monies paid either during that period or under the scheme, plus may be liable for a financial penalty as well.
HMRC already have a penalty system allowing them to levy penalties of up to 30 per cent of sums due to HMRC for ‘careless’ errors, and up to 100 per cent for ‘deliberate’ errors.
Even though Employment Tribunals are yet to resume, they have not been abolished and it is worth noting that that normal employment rights are still prevalent even during this pandemic.
HMRC are currently assessing all of the reports and preparing to take action. In the meantime, they are encouraging employees who are concerned to report potential abuse of the scheme by their employers. HMRC want to remind people that they are not trying to catch people out and are here to assist employers with genuine mistakes, but will not hesitate against legal action for more serious cases.
The report can be submitted anonymously via the HMRC website here.
About the Author:
Bradley Graves - Leeds Beckett University Student
Aspiring barrister. Currently a Pegasus Access Scheme scholar with The Honourable Society of the Inner Temple and under the mentorship of Park Square Barristers.
Brad will be going in to his third year of studying Law LLB having completed modules such as: Equity & Trusts, EU Law, Advocacy, Applied Criminal Law, Tort, Commercial Law and Property Law.
From his experience with Park Square Barristers, he has developed an interest in Employment Law and have chosen this for his final year study with dissertation.
He is always looking for experiences to better his legal knowledge.
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