Companies Accused of Furlough Fraud

Companies accused of furlough fraud are on HMRC’s radar as they look into furlough fraud schemes following a report that HM Revenue & Customs is investigating 8,000 tip-offs to its fraud hotline. Up to six million employees could be involved. If true, this represents tax fraud on a huge scale.

A study by Oxford, Cambridge and Zurich universities, conducted surveys of 9,000 people and found that the ban on working while furloughed was “routinely ignored”, with 63 percent of furloughed employees having broken the rules. The most frequent breach of the ban was working from home while furloughed.

The study also found that furloughed staff were working an average of 15 hours a week and that a fifth of furloughed employees were instructed to carry on working by their employer.

The highest percentage of those who continued to work were people with jobs in computing, while in the information and communication sectors, more than a third of furloughed employees worked from home, according to the Mail on Sunday. An estimated six million people have carried on working in breach of the Treasury Direction which at 6.1 states:

6.1 An employee is a furloughed employee if- (a) the employee has been instructed by the employer to cease all work in relation to their employment, (b) the period for which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more, and (c) the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease.

The Daily Telegraph quoted an HMRC spokesperson on 23 August 2020 as saying: “We are now starting to investigate claims in depth, paying particular attention to Job Retention Scheme claims that are out of step with the payroll data that we hold and drawing on the 8,000 calls that have come into our fraud hotline from members of the public.”

Furlough fraud is a criminal offence under the Fraud Act and other statutes. However, the Finance Act 2020 adds civil penalties where the CJRS or Coronavirus Job Retention Scheme payment has not been used to pay employees’ wages, PAYE, NIC or pension contributions. Under the FA 2020, HMRC have the power to recover payments, by imposing a 100% tax charge, from anyone who has received a payment under the CJRS to which they are not entitled or anyone who has not used a CJRS payment to pay employment costs and to charge a separate penalty where a person has received a payment to which they are not entitled, had knowledge of the non-entitlement at the time the income tax charge arose and did not inform HMRC before the end of the notification period of 90 days.

This also applies to self-employed people who have received funding under the SEISS or Self Employment Income Support Scheme.

HMRC are likely to investigate employers who have claimed furlough payments while instructing furloughed employees to continue working. The likelihood that many such employees will be made redundant as the CJRS scheme ends on 31 October 2020 will then report their employers to HMRC for breach of the furlough scheme rules claiming that they were forced to continue working will only add to HMRC’s tax fraud intelligence database.

How Patrick Cannon Can Help

If you or your company may have committed furlough fraud and wish to put the matter right or are facing an HMRC furlough fraud investigation, or you are reporting your employer because your employer might be abusing the furlough scheme, Patrick may be able to advise and assist you.

Please contact him here for an initial discussion

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For professional and insurance reasons Patrick is unable to offer any advice until he has been formally instructed.