Further to our last article on the large scale reports of furlough fraud, the reports of furlough fraud have more than doubled since then.
Reports Of Furlough Fraud
HMRC had reported that they had received 795 reports of furlough fraud up to the 14th May 2020. However, HMRC have now released updated figures in which they reveal that up to the 29th May 2020, they have received 1868 reports of furlough report.
In light of the increase in reports of furlough fraud, the HMRC has published draft legislation in which it plans to amend the Finance Bill 2020 to allow it to "raise Income Tax assessments to recover amounts from the recipient of a SEISS or CJRS payment to which they are not entitled or where a CJRS payment has not been used to pay furloughed employee costs. HMRC will also be able to charge a penalty in cases of deliberate noncompliance." Under the legislation, the HMRC will also have "powers to make a company officer jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which was never intended to be used to pay furloughed employee costs in certain circumstances. Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled. These powers apply where HMRC can meet certain tests showing there is a serious risk that the company will be unable pay the Income Tax assessment." That is, where a company cannot repay HMRC themselves (e.g. because of insolvency), then each and every director will themselves become personally liable to repay the monies.
Crack Down By HMRC
A HMRC representative stated that HMRC is working on the assumption when applying joint and several liability that “each partner is taken to know anything that any of the other partners know.” The representative added that: "The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. This is taxpayers’ money and fraudulent claims limit our ability to support people and deprive public services of essential funding. We’d ask anyone concerned their employer might be abusing the scheme to please contact us. It could be that you’re not being paid what you’re entitled to, they might be asking you to work while you’re on furlough, or they may have claimed for times when you were working."
Reports of furlough fraud can be made to the HMRC online here.
Nevertheless, the Head of Tax at Chartered Accountants, Moore Kingston Smith, Tim Stovold, warned in FT Adviser that the new rules could end up impacting those companies and directors who have made genuine and innocent mistakes due to the complexity of the rules. He states: "Although these rules apply to fraudulently claimed furlough grants, they will also apply where the company has not understood the complex rules of the scheme and claimed the grant in error. HMRC is paranoid about fraud but these powers could make a director liable to repay an amount they never benefited personally from in the first place."
