Fighting the Fake Furlough Fraudsters

Monday August 3, 2020

HMRC has a lot of rules – enough that it takes a true tax expert to untangle them reliably. If there’s one that stands above all the others though, it’s this: never try to trick the taxman.

That’s a drum we beat hard and often at RIFT. Giving bad information to, or keeping good information from, HMRC is a terrible idea – and yet so many people keep ignoring the warnings and trying it on. Businesses making claims under the Coronavirus Job Retention Scheme, sadly, appear to be no exception. Over £27 billion has been paid out through the scheme so far, and HMRC’s concerned that a lot of that money’s been claimed fraudulently. With thousands of reports of bad claims already coming in, HMRC is ramping up its investigations with a view to clawing back the cash it paid out incorrectly. Essentially, plans they floated in July would see Coronavirus Job Retention Scheme (CJRS) grants being treated as taxable at a rate of 100% - meaning businesses that made fraudulent (or even accidentally inaccurate) claims will be paying back the full amount, plus any additional penalties that apply.

So, with the spotlight firmly on pretty much every CJRS claim that’s been made so far, now’s the time to make sure your bookkeeping’s absolutely solid. That means checking you’ve got proof that the furloughed employees you claimed for were fully eligible, and that the grant money reached them correctly. You need to be thorough here. You need to be ready to provide copies of the written advice you sent to furloughed employees to let them know where they stood, for instance. On top of that, you’ll need to show that key furlough rules were followed – such as making sure that the affected employees didn’t continue to do any work for your business while they were furloughed.

If you find that you’ve messed up in making your claim, believe us when we say it’s better to come clean now than to wait for the taxman to catch up with you. If HMRC gets the impression that your bad claim was deliberate, things will get a lot worse in a hurry. Overpayments can either be sorted out in your next CJRS claim, or paid back directly online.

Keep in mind that it’s possible that you’ve actually under-claimed for furloughed employees. Again, checking your records thoroughly is the key to getting the best from the scheme. It may not be too late to get the full grant you’re entitled to.

Self-employed people are under the microscope as well, of course. It’s a little less likely that there’s been a mistake in the Self Employed Income Support Scheme (SEISS) – and if there has it was probably the taxman who made it. Assuming your claim was valid in the first place, pretty much the only way to get an overpayment is if HMRC messes up. That said, investigations will probably focus on aspects of your claim that are tricky to check into. If you haven’t submitted a Self Assessment tax return for 2019/20, for instance, it’s hard for HMRC to know for sure that you qualify for SEISS. Likewise, the taxman has no way of knowing if you genuinely did intend to continue trading in 2020/21. Trickier still is the question of whether or not your business has been “adversely affected” by the pandemic. There’s some fuzzy wording there that could make things a little messy. Again, if you find out that your SEISS claim wasn’t valid, it’s a lot better to raise the alarm now than get caught out later.

With both support schemes, there’s a 90-day notification period to let HMRC know that you’ve been overpaid. If you let that deadline slide by and get investigated later, you’re looking at some penalty pain. You’ll get a tax assessment of 100% of the overpaid amount for a start. Lumped on top of that will be a penalty worth between 30% and 100% of the amount you overclaimed, assuming you let HMRC know about the problem yourself. If they have to prompt you, that range goes up to between 50% and 100%.

Remember: it may not always seem like it’s on your side, but HMRC really isn’t the enemy. The taxman will never deliberately try to cheat you – but he expects the same courtesy from you in return. Check your paperwork, get in touch if you need help and keep listening out for more Voices from the RIFT...

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