Furlough scheme and fraud, offences and sanctions

The government has introduced a number of schemes to protect individuals and businesses due to restrictions resulting from the global COVID-19 pandemic. Several grants have been awarded to businesses and the self-employed. The system most used by British companies but also the most expensive is the Coronavirus Job Retention Program (CJRS). This allows an employer to keep an employee in his company and continue to pay him his wage and apply for a grant to cover part of the regular wages for any time spent on furlough or if his work has been limited by COVID-19. 

The rules governing this measure are complicated and have changed several times since their entry into force on March 1, 2020.

The UK government estimates that almost £ 3.5bn has been paid in the form of false or fraudulent claims. But what are the penalties if you wrongly claim under the CJRS. It seems obvious that the HMRC, responsible for administering the grants, will relentlessly prosecute those who have abused this measure. It deploys new investigative and enforcement powers introduced within the framework of the Ministry of Finance and the 2020 law promulgated on July 22, 2020.

What if you inadvertently requested or received a CJRS claim and COVID-19 support to which you were not entitled?

Errors do occur and HMRC understands this. So, if you made a mistake in your application or if you do not plan to use the money collected to pay wages, taxes, national insurance or pension contributions, you must notify HMRC at most late:

  • 90 days after the date you received the grant.
  • 90 days after your situation changes, you are no longer entitled to keep the grant.
  • 20 October 2020.

We are talking about the notification period. Otherwise you will incur penalties.

The new provisions confirm that CJRS payments are income tax or corporation tax. The overpayment amount must therefore be repaid within "the relevant period". If you are a sole trader or a partner, this period ends on January 31, 2022 and if you are a business, the period ends 12 months from the end of your accounting period.

What if you don't refund or report the overpayment amount within the notification period?

HMRC can recover the full amount of the excess amount through a tax assessment. The latter must be refunded within 30 days and penalties may be charged in the event of delay. HMRC may also charge you a penalty of up to 100% of the amount of CJRS wrongly received as a punishment for not reporting the excess claim within the notification period.

HMRC can also request reimbursement and apply penalties against individual partners of a partnership and corporate officers of insolvent companies.

Criminal investigations

HMRC said its priority was to tackle willful disrespect and criminal attacks on the system. Thus, in some cases, these acts will be deemed too serious to simply impose a sanction and they will then give rise to a criminal investigation. Some arrests have already taken place.

What is furlough fraud?

Furlough frauds concerns the following situations:

  • When the employer asks his employees on leave to do "a little work on the fringes" to help the company (which was totally prohibited before July 1), or to participate in work ancillary to their main role.
  • Claims that have been made for people no longer working for the company, whose return from maternity leave or absence of illness have been manipulated in order to benefit financially from the scheme.
  • When an employer claimed vacation pay, without passing on the full amount paid to the employee, or when an employer requested vacation pay, but the affected employees were unaware that the requests had been made and therefore continued to work normally.
  • Backdated claims.

In addition, the CJRS is expected to end around the end of October and more flexibility was introduced in July, there will be more possibilities for "abuse" or misuse of the scheme.

What are the criminal offences for furlough fraud? 

Serious offenses for which individuals could be investigated and prosecuted may be:

  • Fraud by misrepresentation under the Fraud Act 2006.
  • False accounting.
  • Conspiracy to defraud.
  • Deceive public revenue.
  • Money laundering.

In addition, a business may be investigated for a strict liability offense of failing to prevent the facilitation of tax evasion. This offense was introduced under the Criminal Finance Act 2017.

HMRC powers 

HMRC can perform spot checks and compel the disclosure of information, but also obtain account freeze orders while it conducts its investigations.

They also have the power to arrest and question people.

What should employers do now?

Whether false claims have been made as a result of misunderstanding the rules, or on purpose, businesses currently have a narrow window to rectify issues. Otherwise they risk suffering serious consequences. It is undoubtedly time to check these vacation pay and seek advice if necessary from an employment lawyer who knows about criminal law to minimize the consequences of any claims that should not have been made. Turning a blind eye or hoping that HMRC won't know is reckless and a position that can lead to criminal conviction and even imprisonment.

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