<img src="https://secure.leadforensics.com/84240.png" style="display:none;">

Furlough fraud and HMRC inspections

5 min read | 7 December, 2020 By Nick Hardy

    

With HMRC predicted to audit thousands of small businesses to ensure furlough payment claims were legitimate and accurate, many company directors will need to provide records and documents for inspection. We discuss what we know so far about the inspections and the practical steps business leaders can take to ensure they are compliant if HMRC selects them for an audit.

To date, the Government has expended some £39.4 billion via the Coronavirus Job Replacement Scheme (CJRS). At its peak, the CJRS supported more than 9.6 million workers furloughed by their employers.

HMRC estimate that between £1.75 billion and £3.5 billion could have been claimed fraudulently or by mistake. 

Maintaining accurate records has always been an important aspect of responsible and legally compliant employment, but as UK businesses transition between Government’s Coronavirus Job Replacement Scheme and the replacement Job Support Scheme, it has arguably never been so important.

HMRC are already investigating claims of fraud and businesses may need to submit records and documents as part of investigations.

HMRC inspections

What information is HMRC likely to request? 

What are HMRC looking for?

Effective document management

Final thoughts

HMRC inspections

Although HMRC have said that they are committed to helping businesses rectify honest errors in furlough claims made in a hurry this year, it is highly likely that we will see an increase in the number of inspections it carries out.

HMRC has already indicated their intention to use their inspection powers to investigate claims and clawback payments, paying particular attention to the Furlough Scheme claims that are inconsistent with the payroll data it holds about businesses. In addition to clawbacks, businesses may also face other HMRC penalties.

If HMRC does deem an inspection necessary, business directors will need to provide clear, accurate and up-to-date information. Requests can be made on relatively short notice (most likely two weeks) so we recommend that employers have the information readily available and are able to provide it to HMRC in a timely manner.

 What Information Is HMRC likely to request?

 HMRC is likely to require employers to provide information such as:

  • Employee information, including personal details, calculation details, hours worked
  • Evidence of payments and claims
  • Details of any adjustments or corrections; and
  • Confirmation that everything matches the Real Time Information submitted

What are HMRC looking for?

The majority of businesses have used CJRS as intended, so there’s no need to worry, but due to the nature of the scheme, it’s been open to abuse by employers - so-called ‘furlough fraud’.

A ‘whistleblowing’ hotline has been setup by HMRC to report any abuse or misuse of the scheme, and thousands of reports have already been made.

HMRC are most interested in the following scenarios:

  • Employers claiming for fictitious employees
  • Employees working during the furlough period
  • Situations where circumstances changed and impacted eligibility
  • Furloughed staff returning to work earlier than expected
  • CJRS grants not paid to employees within a ‘reasonable period’

Therefore, HMRC will want to check a number of the claims made by employers during the scheme. Earlier in 2020, HMRC announced they are considering 6,749 cases of potential misuse of the CJRS.

Effective document management

Although, for the moment, it is predicted that only a relatively small percentage of employers will be contacted by HMRC, it is a good idea to consider now whether you would be easily able to gather the information set out above, should it be requested.

Many businesses still rely on paper records or store employee information in payroll or spreadsheets. The problem is that the more systems and filing cabinets used to store records, the harder it is to round these up if requested by HMRC.

The alternative is to use an HR management system like Breathe which includes document management functionality and a single, central place to store employee records. If an HMRC inspector does request information, it’s very easy to provide them with everything requested.

Another advantage of a cloud-based system like Breathe is that it can be accessed by managers and employees from wherever they have access to the internet. If they have been working on documents and records which will need to be included in the information provided to HMRC for an inspection, they can be uploaded into the system. Far easier than collating records via email or even in the post.

Final thoughts

Although most businesses will be spared HMRC investigations, for the companies that are scrutinised, the process will be an unwelcome headache at a difficult time when the focus should be on moving forward and ultimately coming back stronger.

Taking time now to bring information together is sensible, not only if HMRC do require your records but also in terms of working more efficiently as we emerge on the other side of the crisis.

safe_cloud_document_storage

Posted on 7 December, 2020

By Nick Hardy

in COVID-19

Tag COVID-19

Sign up to get the latest HR and people management insights straight to your inbox