Make sure your furlough claims are correct or face fines
HMRC are now checking employers' claims made under the Coronavirus Job Retention Scheme (furlough). Neil Moon, Tax Partner at Nottingham accountants Page Kirk, says you should review your claims and disclose any inaccuracies to HMRC without delay.
Have you furloughed employees? Did you do the calculations in-house? Have your calculations been reviewed by a specialist?
Back in September 2020, HMRC announced that up to 10% of furlough monies had been wrongly paid to claimants. Due to the frequent changes to the guidance published by HMRC and changes to the amounts employers could claim under the scheme, HMRC believes there is a significant chance that businesses have unwittingly made mistakes which could lead to significant fines later down the line.
HMRC is investigating furlough claims at random and if employers do not disclose mistakes now, they are in danger of receiving penalties later, if HMRC selects their business for investigation.
It is therefore imperative that employers carry out a review of the claims submitted and disclose to HMRC any errors found as soon as possible.
- HMRC is investigating claims made under the coronavirus job support scheme
- HMRC may charge penalties where errors are found in claims
- Employers should consider asking a specialist to review their claims
- Employers should disclose to HMRC any amounts over claimed before HMRC reviews their claim
- Penalties can be as much as 100% of the amount over claimed but innocent mistakes that are disclosed to HMRC upfront can be disclosed with no penalty whatsoever
Why are HMRC investigating furlough payments?
HMRC has received more than 26,000 calls to the furlough fraud hotline. It has issued 30,000 nudge letters to claimants and is carrying out wider risk assessments. More than 125,000 organisations have repaid £700m of incorrectly claimed furlough grants already. In fact, HMRC believes the total value of funding wrongly paid to claimants to be £5.7 billion.
Investment of £100m was announced in the Spring Budget for HMRC's taxpayer protection taskforce, and 1,265 compliance officers are carrying out checks on taxpayers' claims. Furthermore, HMRC is continuing with external recruitment while staff from other departments are being redeployed to a taskforce set up to carry out these checks.
Who gets investigated by HMRC?
All large businesses will have their claim reviewed. Medium and small businesses may be chosen for investigation at random, or because HMRC believes there are irregularities with their claims, or where information submitted in their claim does not match that held by HMRC.
Why might furlough claims be incorrect?
Certain aspects of the calculations can be particularly tricky, for example with reference to pay for 'variable pay' employees. Plus, guidance for the scheme has been updated many times since March 2020; software developers could not keep up with the frequent changes resulting in errors in some calculations produced by payroll software. HMRC's calculator was only as good as the data put into it, so we did not find that particularly helpful either.
Examples of common reasons why employers may have miscalculated claims include the following:
- Reliance on payroll software: as mentioned above, in our experience errors were found with the calculation of reference pay by payroll software.
- Communication: decisions about which staff were on furlough, and when, were often made by a different team from the one preparing the furlough calculations, and the message to bring someone back from furlough, for example, was not passed on.
- Employees continuing to work: if an employee is furloughed, he/she should not carry out any work for their employer. Staff training is permitted in certain circumstances. Directors should not carry out any fee earning work whatsoever.
- National insurance and pension calculations: these were particularly tricky, especially for example where the employer was claiming the Employment Allowance, or where employees pay was topped up.
- Reference pay errors: employers were often confused about which period reference pay should be based on, and some simply based their claims on 80% of the pay they received in the month before they were furloughed, which was not necessarily correct.
What should employers do and when?
The ramifications of making an overclaim are not limited to the repayment of the amount overclaimed; it is also the potential penalty, which could be as much as 100% of the amount overclaimed. Then there are interest charges levied on the amount overclaimed, so timing is absolutely key. The sooner any overclaims are identified and repaid, the lower the interest charges.
The employer could suffer severe reputational damage if associated with an inaccurate or false claim. Did you know HMRC has published the names of every employer that has claimed furlough funding, and is continuing to do so?
We recommend the employer appoints a suitably knowledgeable professional, usually their accountant, tax adviser or external payroll service provider, and they start their review with a sample check. It is vital that all areas of the calculation and the basis of the claim are reviewed.
The reviewer should fully document what has been checked, and how, and keep a record of it, and the employer should repay any overclaimed funding.
HMRC has up to 20 years to check claims and recover overclaimed funding, plus interest and penalties. However, HMRC's penalty system is based on taxpayer behaviour, so honest mistakes that are fully disclosed to HMRC upfront, before HMRC discovers them, are far less likely to carry a penalty.
How can Page Kirk help?
Whether you are a Page Kirk client or not, we can carry out the necessary checks, no matter where your business is located.
We will advise employers how to make disclosures, or make the disclosure on their behalf, and negotiate with HMRC in respect of any potential penalty charges to get the best outcome.
We have a small team of professionals experienced in all aspects of the coronavirus job retention scheme; we have completed over 400 claims on behalf of clients since the introduction of the scheme; and we are familiar with all aspect of the coronavirus job retention scheme.
For more information call 0115 955 5500 or email firstname.lastname@example.org.