The Government’s Coronavirus Job Retention Scheme (CJRS), which introduced the concept of Furlough Leave, is said to be the most significant financial support package in UK history. It has proved to be a popular and vital way for employers to reduce payroll costs in these uncertain times, with more than two thirds of private sector businesses claiming support, at a stated cost to the Government of circa £25.5 billion as at 28 June (with estimates of the final cost ranging between £40 and 60 billion).
With 1.1 million businesses taking advantage of the CJRS (to furlough in total 9.3 million employees), there will undoubtedly be employers who have either knowingly misused the CJRS, or have accidentally done so.
What types of misuse has there been?
It is important to distinguish between a furlough “fraud” and a furlough “mistake”.
Some examples of furlough “fraud” that are said to have occurred include:
- Claims made for employees who do not even know they have been furloughed (they have continued to work throughout lockdown)
- Claims made for employees who have been on unpaid leave during lockdown
- Claims made for furloughed employees who have been undertaking some or part-time work during lockdown (which prior to 1 July was unlawful, and thereafter is only permitted pursuant to the rules of the Flexible Furloughing Scheme)
- Claims made in respect of a salary in excess of the employee’s actual salary, providing the employer with a profit
Some examples of furlough “mistakes” whereby the employer has unknowingly misused the CJRS that we are aware of include:
- Claims made using the wrong mathematical formula resulting in an overclaim
- Claims made using the wrong reference salary for the employee resulting in an overclaim
- Claims made in circumstances where an employee could not be furloughed (for example, because the employee was signed off work as sick)
- Claims incorrectly made where an employee’s employment has been terminated or is under notice of termination
There are also many grey areas remaining, where it is not entirely clear whether a claim is permitted or not (one area of contention and likely litigation relates to those employers who have made furloughed employees redundant).
The latest Government response
Under new measures incorporated into the Finance Bill 2020 (the ‘Bill’), which is set to become law this month, HMRC will be granted new powers (beyond those they already have) to audit the veracity of all CJRS claims.
The burden will fall to employers to be able to show that:
- Employees were furloughed for the right reasons;
- They had permission from each employee to be furloughed;
- The claim was calculated correctly;
- The full amount received from the grant was paid in its entirety to the employee; and
- Furloughed employees have not carried out any work for the employer (prior to 1 July).
Failure to adhere to any of these criteria will mean that a CJRS grant obtained has not been used to pay genuine employment costs. Where this is the case, in accordance with the Bill, HMRC can not only claw back the grant but they can impose financial penalties on employers who have received payments to which they are not entitled. In more serious cases, a criminal prosecution could also be commenced.
What does this mean for employers?
This is not all bad news for the employer who may be concerned about any errors in their CJRS claims. Once the Bill becomes law, there is going to be a 90-day window in which employers can notify HMRC of any necessary corrections they wish to make to their original claims. But where employers fail to do this, that failure will ‘be treated as deliberate and concealed’ - in other words, serious.
The amendments to the Bill suggest that the approach taken by the Government post-COVID will be robust and underpinned by the need to recover as much money as possible from employers who have abused the system and not acted in the ‘spirit’ of the CJRS guidelines.
In order to avoid reputational damage and penalty sanctions in the future, prudent employers should consider carrying out their own audit (or instructing their solicitors to do so) of their CJRS claims. Now is the time to check and double check for accidental or mistaken claims and take advantage of the 90-day window to self-report should you need to do so.
The Employment Team will be able to assist employers prepare for any potential HMRC audits or carry out a pre-audit. If you would benefit from this service, or for advice generally in respect of the CJRS, please contact our Employment Team via email or call us on 01603 610911.