Coronavirus Job Retention Scheme – HMRC’s enforcement approach
Coronavirus Job Retention Scheme – HMRC’s enforcement
The new HMRC Taskforce will target general CJRS compliance as well as fraud and HMRC Policy have confirmed there is no de-minimis.
HMRC are investing over £100 million in a new Taskforce to combat COVID-19 support fraud. As well as targeting illegitimate Coronavirus Job Retention Scheme (CJRS) claims, the Taskforce will have a broader role in ensuring employers have followed the fundamental requirements of the scheme. The complex and evolving nature of the CJRS means employers should ensure their claims are robust and will withstand scrutiny from HMRC, as well as other stakeholders.
What is HMRC’s compliance approach?
HMRC have already targeted specific claimants where they identified discrepancies between CJRS claims and Real-Time Information returns, as well as conducted a ‘nudge’ campaign involving the issue of over 30,000 letters to businesses of all sizes.
The recruitment and redeployment of 1,265 Officers into the Taskforce, and the need to demonstrate a return on that investment to HM Treasury and the public, demonstrates a clear step up on compliance. HMRC have confirmed this will extend for several years beyond the end of the CJRS with approximately 800 Officers reviewing CJRS claims.
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. But this doesn’t mean errors that result in grants being repayable to HMRC will not be pursued.
Employers must therefore demonstrate that their judgments are robust, and their positions supported by HMRC’s guidance. Where errors are identified, HMRC is unlikely to charge penalties if these are disclosed and corrected on a timely basis.
The names of CJRS claimants, together with an indication of the size of their claims, are now published online. Employees can also check whether they were included in a claim through their online tax account. These measures are intended to increase public scrutiny of CJRS claims as an anti-fraud measure, but inevitably elevate the reputational risk of genuine errors.
What often goes wrong with CJRS claims?
Common errors include incorrectly calculating ‘usual hours’ for flexibly furloughed employees, including ineligible pay elements (e.g. tips) in reference pay, treating salary sacrifice and overtime incorrectly, and failing to implement or observe furlough agreements correctly.
These often result from overlooking changes to HMRC’s guidance as the CJRS evolved.
Overclaims must be repaid to HMRC. These could arise where HMRC disagrees with how an employer has calculated reference salary or usual hours worked, and the employer cannot demonstrate its approach was reasonable based on relevant HMRC guidance.
A repayment obligation also arises when circumstances change such that the scheme’s 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.
Some employers also find claims jeopardised by taking an overly prudent approach. Employers who claimed less than they could under the relevant guidance need to ensure furloughed employees still receive their full entitlement. If workers received less than that because the employer underclaimed, the relevant claim may be invalidated – meaning that it must be repaid – unless the employer makes up the difference.
The above could be a concern for employers who excluded variable pay elements such as overtime, allowances, and commission when calculating reference pay because of uncertainty as to how the rules should be applied.
Employers should reassess those decisions to test whether they can be defended as reasonable based on employees’ terms and conditions, and the guidance in force, at the relevant times.
What should employers do?
We await final details but understand employers will be required to confirm their total CJRS claims, and grants repaid or repayable, on their corporation tax return - subject to the usual declaration that all information given in the CT600 is correct and complete.
HMRC also considers that the CJRS falls within the Senior Accounting Officer (SAO) regime. Claims should therefore be considered when deciding whether SAO certification should be qualified or unqualified. Compliance failures can potentially lead to personal liabilities for the SAO.
Employers should therefore ensure their CJRS claims are supportable, and that this can be demonstrated to HMRC and other stakeholders, such as auditors, investors, and potential purchasers. This includes ensuring key judgments are documented and supported by relevant HMRC guidance, the data underlying submitted claims were robust, and that supporting calculations are accurate.
Where claims cannot be supported, any overclaims should be repaid, any underpayments to furloughed employees made good, and steps should be taken to prevent a reoccurrence.
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