Legislation is being fast-tracked through Parliament to empower HMRC to address misuse issues. An information notice has been published, which provides that any Covid-19 support payments are subject to tax and HMRC has the power to raise a tax assessment on anyone who has received money for which they were not entitled.
Examples of furlough scheme misuse
The furlough scheme was announced in March 2020 with little guidance being provided initially. Employers do not have to prove financial hardship and furloughed employees can still be made redundant, subject to any redundancy procedures being followed. However, one clear rule is that before 30 June 2020, a furloughed employee cannot work whilst they are being paid by the scheme.
One example of how an employer may have misused the scheme inadvertently was by asking a furloughed employee to provide temporary cover for a staff member who is self-isolating. Having staff members work part-time from home was also prohibited, but some employers did not realise this when they applied for the funds.
The information notice states that the HMRC is not deliberately trying to catch out those who have misused the furlough scheme. However, given that it is the Treasury’s biggest upfront Covid-19 expense, with the final bill being estimated at £60 billion, it is inevitable that if misuse is proven, HMRC will recoup funds where possible.
To ensure fairness, the draft legislation includes provision for a 30-day amnesty for those who believe they have misused or mistakenly claimed under the scheme to notify HMRC.
There will be rare cases where employers may have committed criminal fraud. The Fraud Act 2006 provides for a general offence of fraud by:
by false representation,
by failing to disclose information, or
by abuse of position.
To prove false representation, such as claiming furlough funds whilst staff continued to work, the prosecution must demonstrate that the employer acted dishonestly and intended to make a gain for themselves or cause loss to another. There are harsh penalties for those convicted of criminal fraud, facing a possible 10-year custodial sentence.
How to protect your interests
If you have claimed funds under the furlough scheme, you should check your records to ensure paperwork is accurate, including written confirmation of an employee’s agreement to be furloughed, and identify any mistakes. Overpayments can be made through the HMRC portal. If you have intentionally and dishonestly claimed under the scheme, legal advice should be sought as soon as possible, given the seriousness of the offence.
A solicitor will be able to advise you about whether you may have made a mistake when claiming funds under the furlough scheme. Now is the time to seek legal advice and ensure that you self-report during the amnesty, so protecting your interests.
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