HMRC are writing to employers they think need to correct JRS claims. Can you demonstrate that yours are robust?
The Job Retention Scheme (JRS) has two months to run, but HMRC are already contacting employers where they believe claims are incorrect. Whether or not they are contacted by HMRC, employers must check their claims and repay any amounts they were not entitled to receive or retain. Where an obligation to repay a JRS claim arose before 23 July 2020, the employer must repay or report the overclaim by 20 October 2020. HMRC have confirmed they won’t impose penalties for innocent errors that are corrected – or recover grants based solely on the employer’s choice of pay calculation, provided it’s reasonable. This approach means employers must demonstrate their judgements and positions are robust and supported by HMRC’s guidance. A recent study found a large proportion of employees surveyed had worked whilst furloughed without the employer’s knowledge. As this could disqualify claims, it’s also important to demonstrate furlough agreements have been properly observed.
When do JRS claims need to be repaid?
If an employer receives a grant under the JRS which exceeds the sum it is entitled to claim, the excess amount must be returned to HMRC.
An overclaim could arise where HMRC disagree with how an employer has calculated its furloughed employees’ reference salary or usual hours worked, and the employer cannot demonstrate its approach was reasonable based on HMRC’s guidance.
A repayment obligation also arises when circumstances change such that the JRS conditions are no longer met. This would happen where, for example, an employee carries out work whilst furloughed that generates revenue or provides services to the employer.
Grants that are not used to meet the intended employment costs within a reasonable period must also be repaid.
How are repayments made?
Employers can offset amounts to be repaid to HMRC against any subsequent claim. If no further claims will be made, the employer can make a direct payment to HMRC.
Excessive claims that haven’t been repaid in full before the relevant deadline must be formally notified to HMRC. Where an obligation to repay arose before 23 July 2020, the relevant sum should be repaid in full or reported on or before 20 October 2020.
Where an obligation to repay arises on or after 23 July 2020, overclaims should be repaid in full or notified to HMRC within 90 days.
If an employer was aware a JRS grant was or had become excessive at the relevant time, late notifications will be treated as deliberate and concealed errors with the potential for penalties equal to 100 percent of the tax due.
Amounts that are not repaid before the notification deadline are recovered through a special income tax charge due and payable nine months and one day after the end of the accounting period.
What should employers do?
HMRC are unlikely to charge penalties in respect of errors that are identified, disclosed and corrected on a timely basis.
Employers should therefore prioritise reviewing claims for periods up to and including 22 July 2020 to confirm whether any corrections or notifications are required by 20 October 2020.
Robust process should be implemented for scrutinising claims prior to submission to ensure any repayment obligations that arise on or after 23 July 2020 are identified quickly and appropriate action taken within 90 days.
In our experience, common errors include:
Additionally, a recent study by researchers at Oxford, Cambridge and Zürich universities found around two thirds of employees surveyed had worked whilst on furlough – in most cases without their employers’ knowledge. Though well intentioned on the part of the employees, this could invalidate the claim for the worked furlough hours or, potentially, the entire claim period.
Employers should therefore confirm whether employees on furlough undertook any activities without their knowledge that generated revenue or provided services to the employing group. If so, relevant claims should be reviewed and JRS grants for the relevant hours or periods repaid.
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