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Exposing Furlough Fraud

View profile for Leanne Day
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Many employers throughout the UK have had to work hard to keep their businesses afloat throughout the Coronavirus pandemic.  If their business has been affected or they have had to close during lockdown in accordance with Government guidelines, then rather than employees being made redundant they have been able to be placed on furlough under the Coronavirus Job Retention Scheme, with 80% of their wages up to £2,500 a month being funded by the Government.  Statistics released by HMRC show that up to 5th July 2020, 9.4 million people had been furloughed at a cost of £27.4 billion.  However, despite the purpose of the scheme being to offer a lifeline to employers, some have taken the opportunity to abuse the system and make dishonest claims.

What might be treated as fraud?

Up until 1st July 2020, to be eligible to claim repayments under the scheme employees must not have undertaken any work for their employer and this must be confirmed when submitting a claim to the scheme.  However, for many reasons non-compliance with the rules of the scheme may have arisen.  For example, it may be as simple as an employer misunderstanding the guidelines and requirements. However, it has been clearly explained from the beginning that employees must not undertake any work for their employer while furloughed and ignorance of the law will not be a defence. Examples of actions treated as fraudulent may include claiming for an employee without their knowledge, asking an employee to work while furloughed, asking them to use their personal email addresses and mobile numbers so the work cannot be easily traced, or asking employees to work for their linked companies while furloughed.  It may be that the employee is unaware a claim is being made on their behalf, or they may be worried about the consequences of refusing a request of their employer to work while furloughed.

How might fraud be exposed?

HMRC have had to make rapid and significant payments under the scheme during the last few months and as such it would have been impossible to check every claim in detail at the time of submission.    

Because of this, wide levels of fraud are anticipated by HMRC and draft legislation is currently being considered to allow a 30 day window for employers to admit to any mistakes.  Once this window has passed, HMRC are set to carry out thorough and extensive investigations to vigorously uncover erroneous claims.  The penalties imposed on employers who are then found to have deliberately and knowingly defrauded the scheme and concealed information could be significant.

HMRC have confirmed within their guidance that audits can be carried out on employers retrospectively on all aspects of their claim to ensure that the information submitted was honest and genuine.  Employers should thus keep detailed records in support of their claims.

Audits are just one of a number of ways HMRC could be alerted to an abuse of the scheme. Within HMRC's guidance, employees are encouraged to report their employer if they are aware of fraudulent activity.  Any information provided is treated as confidential and employees do not have to provide their personal details; this may reassure them and allow them to feel more comfortable knowing they can make a disclosure anonymously. 

Another way in which HMRC may detect fraud is by looking through a company's tax returns.  If it is revealed that revenue has been maintained or increased despite their employees being furloughed, this may raise suspicions and alert HMRC that fraud may have been committed.

What could be the consequences of defrauding the furlough scheme?

HMRC are yet to set out in detail the consequences of misleading them and presenting fraudulent claims, but harsh punishments are expected to be imposed on those in deliberate breach of the rules.  Possible financial penalties could include repayment of all monies paid to the employer under the scheme, imposing heavy fines or adding tax to the amount wrongfully claimed.  Enforcement proceedings may follow for any monies not paid.

Other sanctions could consist of naming those companies who have made a deceitful claim which could cause reputational damage, and criminal inquiries and prosecutions in accordance with the Fraud Act 2006 with possible outcomes being fines and imprisonment.  Directors may also face repercussions such as disqualification for up to 15 years if they haven't followed their legal responsibilities.

It is clear that HMRC intend to treat any fraudulent conduct very seriously.  Now is the time for employers to check through their paperwork to ensure that they have been compliant with the rules of the scheme and declare any mistakes.  If you require any assistance or advice, please do not hesitate to contact a member of our employment team on 01205 351 114 or 01522 814 638.

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