With all of the rapid changes in the heart of the coronavirus pandemic, understanding the HMRC furlough scheme and the rules regarding furlough pay was confusing. As with anything, some employers abused furlough, and others made legitimate mistakes that needed to be rectified.
At the end of 2021, the government introduced the Taxpayer Protection Taskforce to recover the money paid out in fraudulent claims. St Pauls Chambers discusses what furlough fraud is and what it could mean for employers.
What Was the Furlough Scheme?
In response to the COVID-19 pandemic, HMRC imposed the furlough scheme on 20th March 2020, to offer businesses support against the financial impact of coronavirus. HMRC reports that by the end of August 2020, 9.6 million employees were registered on the furlough scheme as everything was shut down, from offices to high street shops.
The government-funded furlough scheme, otherwise known as the Coronavirus Job Retention Scheme (CJRS), initially paid 80% of furloughed workers’ wages, up to £2500 per month, per employee. The government’s contribution altered to a 70% grant in September 2020 and a 60% grant in October 2020.
The furlough scheme was originally meant to end on 31st October 2020. However, in response to the second national lockdown from 5th November to 2nd December, the furlough scheme was extended for a month and then extended further until 31st March 2021 at the original rate of 80%. The scheme was not removed fully until 30th September 2021.
What Is Furlough Fraud?
Furlough fraud is a type of payroll fraud that occurs when a business intentionally or unintentionally overclaims from the furlough scheme. As the scheme came into place quickly, HMRC furlough fraud could result from employers simply misunderstanding the CJRS guidelines. However, some individuals intentionally took advantage of the furlough scheme for financial gain. At the end of 2021, HMRC estimated that it paid out around £5.3 billion in error and fraud.
On 22nd July 2020, the Finance Act 2020 received the Royal Assent meaning that by law, businesses had 90 days from the day of receiving the grant to report any wrongful or overpaid grants from the CJRS.
Employers Abusing Furlough
Businesses registered with the furlough scheme were instructed to receive the government grant, and their furloughed employees were not permitted to undertake any work or work-related activities.
For instance, an example of businesses breaking this guideline would be asking employees to open and check their emails while receiving furlough pay. In addition, any process which contributed to the business was not allowed while on furlough pay, such as asking an employee to attend business meetings (either in person or virtually).
If you decided to take annual leave while on furlough but didn’t receive annual leave pay, and your employer kept that sum for themselves, that would also be fraudulent. Workers who took annual leave during furlough should have been paid the standard annual leave rate, likely higher than that covered by government grants (with the employer making up the difference).
The Taxpayer Protection Taskforce
The Taxpayer Protection Taskforce (TPT) was set up in early 2021, committing over 1,200 people to recover any funds paid out fraudulently. It will be in place until the end of 2022/2023.
Where overpayments have been made in error, HMRC encourages people to report it themselves or work with HMRC’s furlough fraud team to return any overpayments. In cases of accidental or mistaken fraud, the TPT has said they will be lenient so long as the employer collaborates with them to correct the issue.
The penalties for businesses that do not work with them include a 100% repayment of any fraudulent claims or overpayments not reported, alongside a penalty charge of up to 100%. Another alternative implication of furlough fraud includes being arrested, with the first arrest in relation to furlough fraud occurring in early July 2020. More recent arrests include suspected fraudulent claims of up to £3.4 million.
HMRC Furlough Fraud Legal Advice
If your client’s business is under investigation by HMRC regarding furlough fraud, or if they have been accused as an employer abusing furlough, please contact our specialist fraud barristers today.