• Eloise Knapton, Partner |
  • Caroline Laffey, Partner |
  • Donna Sharp, Partner |
5 min read

With the Coronavirus Job Retention Scheme (CJRS) now closed and the economy reopening, it is tempting to put the furlough scheme behind us.

However, at a total cost of £70 billion to the public purse, HMRC are understandably focussed on furlough fraud and errors. In January they announced that their new specialist taskforce is expected to recover £800 million to £1 billion across all COVID-19 support schemes by 2023. The recent resignation of Lord Agnew, a former Treasury Minister, to highlight perceived shortcomings in coronavirus support counter-fraud activities adds further attention to the issue.

Whilst HMRC are actively reviewing both the grants claimed and payments made to employees, scrutiny could also be triggered by employees, investors, and/or other stakeholders. The financial and reputational impact could be significant even if your business made inadvertent errors: pro-active engagement is key.

Complying with the CJRS rules wasn’t straightforward and, given the complexity of the rules, the understandable speed of their introduction and the challenging environment for everyone, it’s unsurprising that some employers unintentionally overclaimed grants or underpaid employees.  More than £350 million of overclaimed grants have already been identified by businesses and repaid, even before the introduction of the new taskforce. 

Given the seriousness of misusing taxpayer money, even unintentional over/under claims risk being perceived as reckless or even fraudulent by those outside of your organisation. It is therefore important to take control of this risk and manage it appropriately for your business.

Why you should review your claims now

Risks of errors in your CJRS claims include:

  • The financial costs of repaying claims, correcting underpayments to employees, and any penalties HMRC might impose;
  • Reputational damage with stakeholders, including investors, suppliers, customers, and the press – businesses that claimed could see greater scrutiny of their executive pay and dividend policy, and if claims were incorrect it could potentially impact your ability to win government contracts; and
  • Damaged relations with employees and trade unions if workers were not treated correctly while furloughed (e.g. if they were expected to carry out some work, which could also invalidate the claim) or did not receive the full payments to which they were entitled.

Self-review, and proactively engaging with HMRC to disclose and correct any errors, is vital to mitigate any penalties, manage your relationship with HMRC and identify any issues that might require management with other stakeholders.

Proactively reviewing claims and voluntarily disclosing any issues to HMRC also provides clear evidence that there is no intention to deliberately overclaim and protect your business from the risk of being brought with HMRC’s fraud approach.

What to do if amendments are necessary

It’s important to let HMRC know of potential overclaims as soon as possible to minimise the risk of penalties arising. Businesses can submit a provisional notification through the CJRS portal which tells HMRC that the employer may have overclaimed and will repay any amount due once this has been confirmed. Once a repayable amount has been determined, the employer should request a reference number through the CJRS portal and make repayment within 30 days.

Employers should therefore revisit CRJS claims and consider whether any amendments are necessary, given changes to HMRC guidance as the rules evolved – bearing in mind it’s not just over-claiming that poses a risk.

For example, many employers were initially conservative when calculating reference pay, judging it better to underclaim than claim too much. But if employees did not receive the full furlough pay to which they were entitled, employers will need to make good the shortfall or potentially be required to repay the grant claimed in respect of that employee.

It’s natural that you may be concerned about bringing any errors to HMRC’s attention.

But claims that have been subject to review now will be easier to defend than in a few years’ time when the decision-making processes cannot be easily recalled. As we carry out independent reviews, employers are already struggling to explain decisions made and data sources and methodology applied in preparing calculations.

What should you do?

It’s important that you ask the right questions now to give you confidence in your CJRS process and that you made the right decisions.

A CJRS self review  should follow the claim timeline covering the periods: before furlough, during furlough, flexi-furloughing employees and ending furlough.

For each phase, you should retain:

  • A decision log providing an audit trail of all decisions taken – including who made the decisions, the process for sign off and basis for the decisions taken;
  • A risk matrix showing the threats to non-compliance together with safeguards and evidence to support compliance e.g. advice obtained on contentious areas;
  • A record of data sources, their relevance to the calculation by reference to the guidance at that time and evidence to support the integrity of the data;
  • Your calculations and supporting methodology together with an audit trail of the payments made to employees, HMRC and the pension scheme where appropriate; and
  • Communications or commentary from third parties such as trade bodies or unions.

Who are your key stakeholders?

In addition to HMRC, key stakeholders include:

  • Auditors: who might review CJRS claims as part of their year-end process for signing off accounts;
  • The Senior Accounting Officer (SAO): HMRC have confirmed that in their view the CJRS falls within the SAO regime. As this carries personal and business responsibility when HMRC consider inappropriate tax accounting arrangements to be in place, the SAO will need assurance that claims are correct;
  • Employees and unions: employees may have questions in relation to their respective payments, particularly if actual payments differ to their expectations, and these queries might be raised long after payments were made as press coverage raises awareness of other employers’ errors;
  • Banks: when you’re seeking finance, your lender will want to know if you have any exposure to HMRC and face financial risks such as penalties;
  • Investors: shareholders and other investors will want to know that you operated the CJRS appropriately; and
  • Customers: adverse publicity in relation to your claims could affect your reputation with customers – particular attention should be paid to claims where your business involves delivery of public sector contracts as any errors are likely to face greater scrutiny.

Consider an independent view

The CJRS was complex and the guidance subject to regular change – with some amendments being made even after the scheme had closed.

Almost all the claims we have reviewed to date for clients have included some errors or area where positions needed to be better supported.

Given the value of your claims, consider whether you would benefit from an independent review.