What just happened?
The Coronavirus Job Retention Scheme (CJRS), also known as the furlough scheme launched in March had paid out £35 billion and has been used by 1.2 million employers enabling 9.6m jobs to be furloughed.[1] The UK tax authority has claimed that UK may have paid out up to £3.5 billion in furlough money on fraudulent or mistaken claims.[2]
What does this mean?
HMRC fears that up to 30,000 firms could have committed furlough fraud and wrongly claimed Government cash when they were not entitled to it.[3] It is also argued that the firms have inflated the number of their employees on the books or how many hours they have worked to get their hands on extra cash. [4] Over 88% of men and 77% of women continued to work while being supported by the scheme, which forbids the employees for working for their employer during furlough leave.[5] Employees on the scheme worked an average of 15 hours a week, and seven in ten were receiving a secret top-up from their employers.[6] Three-quarters of furloughed men had their wages topped up beyond the 80% provided by the government under the scheme, while only 65% of women received a top-up.[7] The economists found that there was a significant proportion of those who received the top-up that flouted the furlough rules.[8]
On 9th July 2020, HMRC issued a press release announcing that a 57-year old man had been arrested as part of an investigation into a suspected £495,000 CJRS fraud.[9] It is likely that more people will be arrested for CJRS fraud as the investigation progresses.
How does it impact the legal industry?
At LawMiracle, we believe that the furlough scheme was the need of the hour, however, the furlough fraud could have been prevented if the authorities paid effective insight to the impacts of the scheme. The fact that some employers have fraudulently taken benefit of the scheme might result in a change in the fraud legislation. It is argued that the fraud legislation should be changed to ensure that those who have ripped off taxpayers face the full force of the law and that taxpayers’ cash is fully recovered.[10]
As the scheme was launched quickly and everyone had to quickly acclimatise, it is reasonable to assume that someone employers might have committed mistakes unintentionally. Where discrepancies have been in error, businesses have 90 days to contact HMRC before penalty notices will be issued.[11] The employers who have received overpayments must notify HMRC and make repayments. Failure to notify the HMRC would result in the penalties of up to 100% of the overpayment where the employer’s failure was deliberate and concealed.[12] In the penalties guide, HMRC has confirmed that it may recover the full amount of any overpayment employers receive through an income tax charge, with interest and penalties due on late repayments.[13]
Although the Crown Prosecution Service (the “CPS”) is the body ultimately responsible for deciding whether criminal charges should be made against a taxpayer, HMRC are responsible for investigating suspected tax fraud or evasion and then making a charging recommendation to the CPS.[14] The limited liability companies and partnerships are less likely to be subject to criminal investigations because of the principle of “piercing the corporate veil”.[15] However, the strict liability corporate offences under the Criminal Finances Act 2017 may apply to any body corporate or partnership.[16] An increase in the investigations by the HMRC would result in employers consulting corporate lawyers specialising in fraud defence, meaning an increased workload for them.
Written by Samriti Rudhra
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References:
[1] Emma Agyemang and Delphine Strauss, ‘HMRC says fraud and error on furlough schemes could total £3.5bn’ (Financial Times, 7 September 2020).
[2] Emma Agyemang and Delphine Strauss, ‘HMRC says fraud and error on furlough schemes could total £3.5bn’ (Financial Times, 7 September 2020).
[3] Natasha Clark, ‘Up to 30,000 firms could have committed ‘furlough fraud’ as HMRC probe 8,000 tips’ (The Sun, 25 August 2020).
[4] Ibid
[5] Jo Faragher, ‘Two-thirds continued to work while on furlough’ (Personnel Today, 10 August 2020).
[6] Dan Keane, ‘Six million furloughed workers broke rules and worked from home during lockdown, major report finds’ (The Sun, 23 August 2020).
[7] Jo Faragher, ‘Two-thirds continued to work while on furlough’ (Personnel Today, 10 August 2020).
[8] Ibid
[9] ‘Solihull man arrested over £495,000 ‘furloughed fraud’ (BBC, 9 July)
[10] Natasha Clark, ‘Up to 30,000 firms could have committed ‘furlough fraud’ as HMRC probe 8,000 tips’ (The Sun, 25 August 2020).
[11] Ibid
[12] Christina Morton and others, ‘Furlough and the Coronavirus Job retention scheme: latest guidance for UK employers’ (Withersworldwide, 13 August 2020).
[13] Ibid.
[14] Jack Prytherch and Andy Brown, ‘UK: HMRC announce their first “furlough fraud” arrest – only a concern for a small few?’ (Two Birds, July 2020).
[15] Ibid
[16] Ibid
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.