HMRC’s new powers under FA 2020 for CJRS fraud

The government introduced Coronavirus Job Retention Scheme (CJRS) on the 20 March 2020 to combat a potential loss of UK jobs across all sectors during the coronavirus pandemic. Originally, the CJRS had been set to end on 30 June 2020, however, following lobbying from various industry groups, the government extended the scheme and it is now due to end on 31 October 2020.

HMRC has released data confirming just how successful the scheme has been, with total number of jobs furloughed standing at 9.8 million as of 2 August. With 1.2 million employers successfully applying to furlough their staff with claims totalling £33.8bn.

The British Chamber of Commerce has stated that, since its inception, CJRS has been used by two-thirds of British businesses and that 56% of businesses still have some staff who are furloughed full time. However, the CJRS was by necessity introduced quickly, with scant and complex guidance, which has made it, in the words of HMRC’s chief executive Jim Harra, a ‘magnet for fraudsters’.

As with any state funded schemes, there will always be individuals willing to defraud the government. The CJRS is no different, with various factors leaving it prone to abuse.

The complexity, alongside the rush with which Rishi Sunak announced and put the scheme into work, inevitably caused confusion among employees and employers alike. HMRC has admitted that some of employers have inadvertently fallen foul of rules, and due to the nature of the scheme being dependent on the applicants’ honesty, there is numerous opportunities for fraudsters to take advantage. HMRC have provided online platforms dedicated to employees wanting to report any suspected CJRS fraud.

Examples of CJRS Fraud

Some of the ways in which the CJRS can be defrauded includes:

  • placing employees on furlough and then requesting that they continue to work as normal;
  • pressurising or encouraging employees to work on a ‘voluntary’ basis;
  • claiming on behalf of an employee without their knowledge and recovering 80% of the employee’s salary, while the employee continues to work as normal;
  • claiming on behalf of a ‘ghost’ employee – someone who has been dismissed before the CJRS’s start date of 19 March 2020, or a non-existent employee who ‘commenced work’ following this date;
  • employers misrepresenting the working hours of staff, so that they can maximise payments recoverable from the CJRS.

It is impossible to predict the scale of any CJRS fraud that has been committed at this present moment, it may be the case that it may take years to discover the true extent of the CJRS fraud.

It is perhaps telling, that The whistle-blower protection charity Protect has stated that furlough fraud is the single biggest issue it has dealt with in its 27-year history, with 59% of its cases since 23 March 2020 related to furlough fraud. The top three industries affected, according to Protect, are hospitality (20% of cases), manufacturing (12%) and retail (12%). With 63% of calls have come from individuals working for companies with fewer than 50 members of staff which is likely to be due to greater economic pressures felt by smaller businesses as a consequence of the coronavirus pandemic.

HMRC Powers                             

FA 2020 has received royal assent on 22 July, s106 and Sch 16 ‘arms’ HMRC with a power to claw back any CJRS disbursements made to businesses who were not entitled to receive such payments, or if the payments were not used to pay employment costs.

Schedule 16 para 8 and para 9 enable an income tax liability to be imposed, by way of an assessment, on anyone who has received a coronavirus support payment to which they are not entitled. The charge is to income tax even if the recipient is a company chargeable to corporation tax. The amount of income tax is equal to the CJRS grant the person was not entitled to and is not repaid; in other words, it is a 100% tax charge. The timing of the income tax charge is:

  • if the person was entitled to receive the amount when it was paid, but subsequently ceases to be entitled, at the time of ceasing to be entitled to retain the sum; or
  • in all other cases- when the payment was received.

Should the business be in a position where insolvency is likely, or has already occurs, sch 16 para 15 of FA20 gives HMRC powers to enforce rigorous individual accountability on company officers.

Penalties and investigations

For failure to notify the a charge to income tax, Sch 16 para 13 allows penalties to be levied. Penalties applied can up to 100% of the potential lost revenue should the actions of the individual responsible be deliberate and concealed. Under no circumstances a penalty lower than 30% will be applied.

Should anyone be found of deliberate misuse of the scheme, a risk of criminal charges being brought is something that HMRC would consider.