Did claims comply with the furlough scheme?
1,100 HMRC staff, a set of FAQs and a negative outcome for a business at the tax tribunal. What’s the common factor?
The answer is – they all demonstrate HMRC’s approach to claims made under the Coronavirus Job Retention Scheme (CJRS or furlough scheme).
Risk profile
It’s an approach summed up in a recent policy paper on errors and fraud in Covid support schemes generally: ‘We are not writing anything off and will continue to prioritise the most serious cases of abuse. HMRC has legal powers to recover this money up to 20 years after the event.’
HMRC is heavily involved in the Taxpayer Protection Taskforce investigating this area. Although HMRC stresses that it is not actively looking for innocent errors, CJRS compliance activity is very much live and it is important for businesses to look back and check past claims and supporting calculations.
FAQs
HMRC has published FAQs showing its position with regard to common errors in furlough calculations. It focuses on instances where calculations were made using methods other than those set out in HMRC guidance, and highlights areas where an error means a claim should be corrected, and where, with certain provisos, it doesn’t.
High on the ‘must correct’ list are errors where an employer failed to take reasonable care following HMRC guidance available at the time of the claim. On the other hand, if an employer relied on incorrect HMRC advice, in certain specific circumstances, claims may not require correction. Please contact us for further details.
Clear bright line
One of the first cases involving HMRC clawback of CJRS payments has recently come to the tax tribunal.
It’s important because even though the tribunal had every sympathy with the taxpayer business, finding it ‘honest and straightforward’ and noting that it had managed ‘extremely competently through very difficult times’, in the final analysis, none of this was enough.
The case turned on the issue of furlough payments for two members of staff who started employment just as the pandemic hit. Though they began work in February 2020, it wasn’t until 25 March 2020 that they were included on an RTI return.
The problem was that to be eligible for furlough, staff not only had to be on payroll on or before 19 March 2020, they also had to be notified to HMRC on an RTI submission on or before that date. The view from HMRC’s corner, therefore, was that claims for these employees were invalid and should be repaid. The view from the taxpayer’s corner was that, having followed the guidance as best it could in a rapidly moving commercial and legislative environment, it had done nothing but claim in line with the ‘spirit’ of the scheme.
The tribunal, however, held that the rules drew ‘a clear bright line to determine eligibility for the scheme’ and regrettably, the taxpayer fell the wrong side of them. It’s a cautionary tale – and it cost the taxpayer more than £20,000 in repayments.
Working with you
When put under scrutiny, many claims under the CJRS are turning out to contain errors – as this one did. Latest HMRC analysis in fact suggests that error was a bigger driver of problem claims than fraud. It also highlights that the greatest area of risk came from employers claiming for employees who were working.
We strongly recommend that businesses take a proactive approach, going back over claims with a view to making disclosure of any issues arising. We can help you review compliance, to help minimise potential exposure to demands for repayment or penalties.