June 12, 2020
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There has been an increasing number of articles and press reports relating to furlough fraud over the last few weeks. The furlough scheme, or the Coronavirus Job Retention Scheme, to give it its official title, allows employers to keep employees on the payroll even though they are not working and for a proportion of their salary to be covered by government funds. It is open to abuse in a number of ways. Businesses may claim that a staff member has been furloughed yet still expect them to work on a “voluntary” basis, or may furlough a working staff member without their knowledge in order to claim the funds. Organisations may falsely hire staff in order to furlough them, or backdate claims.
The Treasury estimates that there are around 8.9 million workers covered by the scheme and that it is currently costing in the region of £14bn per month. Although the scheme is due to close to new entrants at the end of this month, it is scheduled to run until the end of October with total forecasted costs of around £100bn.
Given the amounts involved, it is perhaps unsurprising that HMRC has already said that it will take a hard-line stance and that employers will be required to repay any amounts that have been wrongly claimed. Legislation is currently being passed that will give HMRC powers to reclaim payments and impose penalties on businesses. This includes holding directors jointly and severally liable if any one of them has deliberately flouted the rules. Not only will HMRC audit furlough claims but employees have also been encouraged to report any concerns or suspicions. The figures demonstrate the potential scale of the issue – as at 29th May HMRC had received just under 2000 reports. Whistleblowing organisations are also receiving large amounts of calls from concerned employees. This week a newspaper has reported that 1 in 3 employees have come under pressure to work while on furlough.
While there is as yet no specific offence of furlough fraud, any representation which is made to HMRC dishonestly with the intention of obtaining payment will be a criminal offence. A number of different offences may apply, all of which are punishable with fines and terms of imprisonment. HMRC has already said that it will not hesitate to prosecute in serious cases.
The outlook is not entirely bleak – HMRC has said that it is not trying to catch businesses out and has pledged leniency for those who have made genuine mistakes with their applications. It may, therefore, be worth businesses who have furloughed their staff double-checking the procedure followed. If they do have concerns, it will be worth considering making an early approach to HMRC.