Are HMRC investigating furlough fraud claims?

HMRC have revealed that up to £3.9 billion in Coronavirus Job Retention Scheme (CJRS) payments may have been claimed fraudulently or as a result of error.

Enquiries have been opened into 27,000 “high risk” cases.

Approximately £39.3 billion has been claimed through the CJRS since its introduction in March 2020. This has supported around 1.2 million employers and 9.6 million furlough jobs. However, HMRC now assume that 5-10% of claims were paid out incorrectly, ranging from instances of genuine error in meeting the formal conditions of the scheme through to deliberate fraud.

The CJRS has long been considered a minefield for errors and a tempting target for abuse. But how might HMRC determine an “error” from “fraud” in their investigations approach?

What are HMRC doing?

Over 8,000 whistle-blower reports have helped HMRC identify potentially fraudulent claims and take faster enforcement action. Enquiries into around 27,000 “high-risk” cases have begun.

“High-risk”, or fraudulent, claims are likely to cover instances where:

- - employees have been asked to work whilst on furlough;
  - claims have been made for employees who were never aware of being furloughed or even for non-employees; or
  - claims have been artificially inflated in some way.

It is understood that HMRC are contacting up to 3,000 employers each week to inform them that HMRC have concerns about their CJRS claims, and “nudging” them to correct their claims. If employers do not engage, HMRC will begin one-to-one investigations.

Where there are grounds to suspect fraud, HMRC will usually take more immediate action. HMRC announced their first “furlough fraud” arrest in July. In September, a company director and accountant were arrested on suspicion of fraud by false representation, money laundering and fraud by abuse of position in relation to fraudulent applications for CJRS.

What if you made a genuine mistake?

Even businesses that acted in good faith may be caught by HMRC’s enforcement action. HMRC expect employers to identify mistakes and correct their claims where genuine mistakes have occurred.

CJRS payments that were incorrectly paid can be clawed back by HMRC. If HMRC considers that a business knew that it was not entitled to a CJRS claim, a penalty of up to 100% of the relevant payment may be imposed, on the basis that the business’ wrongdoing was “deliberate and concealed”.

It has been reported that, as of 15 September, 80,433 UK firms have voluntarily returned more than £215m to the government in furlough scheme payments that they did not need or took in error. This is much less than HMRC believe has been taken in error or as a result of fraudulent claims.

What action should you take now?

If you have received payments under the CJRS, pre-empt an HMRC investigation and review your own position as soon as possible. This applies even if you acted in good faith; HMRC are likely to begin with an assumption that errors were made knowingly. Evidence gathered in an internal review will form a “defence pack” against that assumption.

An internal investigation should include:

- - - Looking at all records and payments related to your CJRS claim;
    - Employee sampling to collect evidence from employees to show they were not asked or requested to work whilst on furlough;
    - If you find any anomalies, a more forensic investigation (such as reviewing large-scale internal communications) might be required to help make a disclosure to HMRC and mitigate penalties.

What if HMRC already suspect fraud?

If HMRC already suspect that fraud has been committed, a warning is unlikely to be given. As part of their criminal investigations, HMRC can carry out searches of home and business premises under a warrant. If HMRC conduct a search, it is critical to examine the search warrant to check exactly what permissions HMRC have and seek appropriate legal advice as soon as possible.

You should politely request that HMRC do not begin the search until your legal team arrives, although HMRC are not obliged to wait and you should not physically obstruct them in any way. In a previous article we’ve outlined what to do in the event of a search.

If you are subject to a dawn raid or receive a letter from HMRC suggesting you have made any errors that are being investigated, please contact us urgently.