With £5.3 billion thought to have been lost to error and fraud while the furlough scheme was running, HMRC is stepping up efforts to recover funds from employers. Nick Bustin explains to do if you receive a letter.
During the pandemic many businesses were reliant upon the support provided by the government’s coronavirus job retention scheme. We are now seeing HM Revenue & Customs (HMRC) commencing enquiries into the claims made, often more than two years after a payment was made.
With 11.7 million employees furloughed through the scheme at a cost of £70 billion, it is no wonder HMRC is taking such an interest. The scheme changed multiple times over 18 months and employers were bound to have made mistakes.
HMRC is now taking steps to recover the excess claims. So, what does this mean for organisations that claimed furlough money?
Invitation to correct errors
Back in autumn 2020, HMRC issued approximately 26,000 ‘nudge’ letters. These were effectively invitations to employers asking them to review the claims previously made and, where appropriate, correct any errors.
Where an employer has identified an error, it is possible to repay the overstated amount via the government portal.
Now, enquiry notices are being issued. These request significant amounts of information, including: employee names, addresses and national insurance numbers; furlough start and end dates; how the claims were calculated (including employers NI pension contributions); whether the amounts received by the employer were paid to the employee (including evidence); and how the employer determined each employee’s contracted hours compared to actual hours worked.
The position is further complicated where employees joined the employer ahead of 19 March 2020 (or 30 October 2020, when the scheme was extended), for example, where a transfer under the TUPE regulations arose just before the country went to lockdown. HMRC is seeking to establish whether employers were entitled to receive grants for those employees.
Receiving an enquiry letter
Unfortunately, ignoring an HMRC furlough enquiry is not an option. Once an employer has received a letter, they must consider who will be responsible for dealing with the enquiry, how deadlines provided by HMRC can be met, and possible steps should they not be able to meet the deadline.
Dealing with any HMRC enquiry should be approached with caution and, where appropriate, professional advice should be obtained.
Whilst HMRC will be looking at how claims were calculated, it will also want to establish whether an employee was working while supposedly placed on furlough. It may be looking for notices and information issued to employees when they were put on furlough; access to email records to check activity; mileage records to establish if employees were driving on company business; or building access records including CCTV to see if employees were going to work. Collating this information may be time consuming.
HMRC is taking a hard line and using its statutory powers to issue formal notices to enforce deadlines for the submission of information. Failure to observe these deadlines can result in penalty notices.
Where any failures are identified, the overstated claim will be recovered by HMRC via a notice of assessment, which will be raised only once the enquiry is concluded and all liabilities are confirmed.
Prepare for penalties
HMRC can impose penalties where payment of the final liabilities is late on the following basis:
- between 30 days and six months late, an initial penalty of 5% of the tax owed
- between six months and 12 months late, the penalty above and a further penalty of 5% of the tax that is still owed
- 12 months late or more, both of the penalties above and a further penalty of 5% of the tax that is still owed
Employers should be are aware of the cost implications should they want to ‘spread’ the repayment of the overstated claims.
They must also be mindful that, much in the same as with national minimum/living wage enquiries, there is also the reputational risk of being ‘named and shamed’.
Currently HMRC is issuing enquiry notices to a wide range of employers, not necessarily specific sectors, so all businesses should remain alert. Examples of what could instigate an enquiry can include a risk-based review based upon the ‘real time’ payroll submissions, whether any corrections were made to claims whilst the scheme was running, or any ‘whistleblowing’ claim made by an employee.
HMRC is starting to recover a small proportion of the excess claims originally overpaid. Where an enquiry notice is received, it should be actioned as soon as possible. Sadly, it is expected more enquiry notices will be issued this year and businesses should be prepared to show their workings should HMRC come knocking.