HMRC issues 'nudge' letters on furlough fraud

Out-Law News | 20 Aug 2020 | 3:47 pm | 2 min. read

The UK's HM Revenue & Customs (HMRC) has begun writing to up to 3,000 employers each week to advise them that they may need to repay amounts received under the Coronavirus Job Retention Scheme (CJRS).

The so called 'nudge' letters state that CJRS payments may need to be repaid because the business has claimed for a grant that is greater than they are entitled to or that they may not have met the conditions of the scheme. Businesses are urged to review their records and their claim, with HMRC acknowledging that "mistakes happen". Businesses receiving the letters are told to contact HMRC - whether or not they think they have over-claimed.

Andrew Sackey, a tax expert at Pinsent Masons, the law firm behind Out-Law, said: "Employers should undertake reasonable due diligence to ensure that they and their staff have complied with the rules of the scheme, whether or not they have received one of these letters. Those who find themselves in breach of the rules, for whatever reason, should put the record straight and take advantage of the time limited amnesty to repay sums they weren't entitled to."

"The amnesty covers the full spread of behaviours from employers not being aware that remote staff are working, technical or computational issues, remittance delays, through to deliberate behaviour. This is the only chance employers will have to remedy the position without sanction or penalty, but they need to act promptly," Sackey said.

One of the main conditions of the CJRS is that employers should not work while they are furloughed.

Sackey said: "Employers may find that although they have told furloughed employees that they must not work, employees have, sometimes with the very best of intentions, been generating large volumes of work emails whilst furloughed. Alternatively, clear directions from head office about the prohibition on working may have been ignored by some line managers. Businesses that have made CJRS claims should ensure they have complied with the rules before the amnesty ends."

Where an employer is found to be “not-entitled” to CJRS payments, the payments can be clawed back by way of a 100% income tax charge – regardless of whether the erroneous claim was made innocently, carelessly or deliberately

Not "being entitled" to the payment includes situations where circumstances may have changed so that the employer is not entitled to retain the payment, such as where an employee has left, or where the employer has not used the amount to pay the intended costs within a reasonable period.

Employers that do not notify HMRC within the 'amnesty' period, the first significant date for which is 20 October 2020, but that knew at the time it received the money or knew it had stopped being entitled to it when circumstances changed, will be liable to a penalty on the basis that the wrongdoing was deliberate and concealed. This could give rise to a penalty of up to 100%.

Deliberate behaviour not corrected using the amnesty will also potentially expose an employer to HMRC's criminal powers as well as 'naming and shaming' under HMRC's powers to publish details of deliberate tax defaulters.

In July HMRC made its first arrest in a 'dawn raid' as part of an investigation into a suspected £495,000 furlough fraud.

Sackey said: "When the scheme was announced, chancellor Rishi Sunak said that he would 'do whatever it takes' to support jobs and would 'right the ship afterwards'; we're now moving into that latter phase and HMRC is likely to come down hard on those who don’t engage with the amnesty and are later found to be in breach of the rules. It has already demonstrated that it will use dawn raids if it considers the behaviour egregious enough."

HMRC has a hotline for reporting furlough fraud and already has said it has received around 7,000 reports of abuse.