Employers who have furloughed employees during the coronavirus crisis without meeting the formal conditions of the scheme will be able to take advantage of a new 'amnesty' to repay sums without penalties or further sanctions.
The Finance Bill, which is currently before the UK parliament, contains legislation to enable HM Revenue and Customs (HMRC) to recover sums paid under the Coronavirus Job Retention Scheme (CJRS) which the employer was not entitled to. It will operate by imposing an income tax charge equivalent to 100% of the CJRS grant to which the recipient was not entitled and which has not been repaid.
Under the planned amendments, if an employer notifies HMRC within 90 days of the later of when Royal Assent is granted to the Finance Bill, or when the income tax became chargeable, it will be able to repay money received under the CJRS without incurring any sanction or penalty. The bill is expected to receive Royal Assent later this month.
As we now move into the new phase of 'flexible CJRS', understanding and maintaining a clear audit of whether staff are working or furloughed will become increasingly critical.
Tax disputes expert Andrew Sackey of Pinsent Masons, the law firm behind Out-Law, urged employers to take advantage of the amnesty if needed.
"An important condition of the CJRS is that furloughed employees cannot undertake remunerative work for their employer," he said. "However, head office staff may be unaware that, in practice, local managers have been asking furloughed staff to work."
The income tax liability contained in the Finance Bill will not be limited to fraudulent claims for funding under the CJRS. HMRC may raise an income tax assessment on an employer where it believes that that employer has received a grant to which it was not entitled, regardless of whether the erroneous claim was made innocently, carelessly or deliberately. The circumstances when a person is "not entitled" to a CJRS grant are drafted widely and include when the grant was not used "within a reasonable period" to "reimburse the costs which it was intended to reimburse".
An employer who does not notify HMRC within the 90 day 'amnesty' period, but who knew at the time that the income tax first became chargeable that it was not entitled to a CJRS grant, will be liable to a penalty on the basis that the wrongdoing was deliberate and concealed. There is a minimum penalty of 30% of the grant improperly claimed, and a maximum of 100%.
As of 1 July, employers can bring back employees furloughed under CJRS part time. From August, employers will be required to contribute towards the cost of the scheme.
Andrew Sackey said: "Whether remunerative work has been undertaken may be a binary position or it could be more nuanced and, as we now move into the new phase of 'flexible CJRS', understanding and maintaining a clear audit of whether staff are working or furloughed will become increasingly critical".
"The draft legislation contains the civil power for HMRC to recover monies, and is the complement to HMRC's existing fraud and criminal investigation powers. If firms discover that staff have been working, or if they have stretched the rules or not applied the monies as mandated, and don't take advantage of the amnesty, HMRC would clearly be able to use its full range of civil and criminal powers to investigate and, in circumstances where any tax offences have been committed, prosecute to send a strong deterrent message. It's therefore important to take specialist advice as soon as practicable," he said.
Employees who have been furloughed under the CJRS are not permitted to undertake remunerative work for employers. This means that employers cannot ask employees to do any work for them or an associated or linked company that makes money for the employer or a company linked to or associated to the employer. However, employees can take part in training, volunteer for another employer or organisation, or work for another employer if contractually permitted to do so, while furloughed.
Chris Evans
Senior Associate
It is extremely important that the messaging to staff is clear that whilst they are on furlough they must not be working.
Employment law expert Chris Evans of Pinsent Masons said: "It is extremely important that the messaging to staff is clear that whilst they are on furlough they must not be working".
"Similarly, employers must ensure that managers understand that they must not be encouraging or requiring their teams to work," he said.
"Where there is any breach - either by an individual member of staff or by manager - employers need to carefully consider whether disciplinary action should be taken and whether any other remedial steps are required, such as reiterating their messaging about not working during furlough," he said.
In its guidance on the CJRS, HMRC encourages employees to report fraud related to the scheme, and provides links to an online form through which they can do so.
As of 31 May 2020, 8.7 million jobs had been supported through the CJRS, with claims worth £17.5 billion, according to official statistics (10-page / 199KB PDF).
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