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If you have received a government payout under the Coronavirus Job Retention Scheme (CJRS), or ‘furlough’ provisions, and are in any doubt as to whether the amount received is correct, now is the time to double check, before HMRC start enquiring.
What is the issue?
The CJRS was set up somewhat in a hurry, when it became apparent that the UK would need some form of lockdown, threatening potentially millions of jobs. A system of emergency payments was quickly put together to keep employees on payrolls, who might otherwise have been made redundant.
Something of this magnitude would generally take months, if not years, to design and implement, and of course the government simply did not have that time. Given the choice with which they were faced, between speed of implementation and making sure the scheme was ‘fool proof’ (or ‘fraud proof’), few would argue that the wrong decision was made.
What that does mean, of course, is that, having paid out almost on a ‘no questions asked’ basis, HMRC will be looking very carefully at the claims they have received, in due course.
This will be a high priority for HMRC for a number of reasons. First, with the system having been introduced with such haste, it will inevitably have flaws and be open to innocent errors, because of course claimant businesses were just as time pressured in getting their applications in, as HMRC were in putting it all together. Regrettably, in addition there will have no doubt been cases of deliberate abuse.
Second, tax evasion is unpopular with the public at the best of times, but people are likely to take an even dimmer view of businesses taking advantage of a scheme hatched with some urgency, by a government responding desperately to a global public health and economic emergency. Lastly, of course, the furlough scheme is only one aspect of a huge ‘hit’ to the public finances connected with the pandemic, and ultimately the government will need to start the process of ‘balancing the books’. With public opinion firmly on their side, there is no better place to start than by recovering monies which ought never to have been claimed in the first place.
What will HMRC do next?
Starting over the coming months, we expect to see the vast majority of claims being scrutinised. HMRC have a five year ‘window’ in which to do so. They have let it be known that they will take an extremely serious view of any abuses of the system, and indeed we expect to see, in the more serious cases, criminal prosecutions for the offence of failing to prevent tax evasion. This is what is known as a “strict liability” offence, which means that HMRC do not have to prove that an employer acted intentionally. Rather, they only need to evidence that there has been tax evasion that was ‘facilitated’ by the business or someone working on its behalf.
Alternatively, other serious cases will be dealt with under the “Cop9” provisions. Whilst providing protection against criminal proceedings, Cop9 is nonetheless a serious matter involving a wider review of the taxpayer’s affairs (i.e. not just the furlough use) and stiff tax-based penalties, as well as refunding the original claim, of course.
What should I do now?
In the Finance Bill which is expected to become law early next month, the government is proposing a 30 day window to allow any business, which has taken advantage of the furlough scheme, to correct any errors, without penalty and on a ‘no questions asked’ basis. If you are in any doubt at all over the validity of your claim, it is imperative that you take advice immediately, notify HMRC of any overpayments and refund the money wrongly claimed.
The majority of claims will, of course, be correct, and the money claimed properly due. As with any HMRC enquiry into a taxpayer’s affairs, if you have followed the guidance and done everything ‘by the book’, there is nothing to worry about.
Andrew Cowe, Tax Manager, Brearley & Co Accountants
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