Furlough Fraud: Update

Government minister says HMRC is working on planning assumption of 5-10% error and fraud rate.

In July we wrote an article, ‘Furlough Fraud’, about mis-use of the Coronavirus Job Retention Scheme (the ‘Scheme’) with reports that some employers were claiming funding whilst their employees continued to work for them, potentially in contravention of Scheme rules.

On 7 September, HMRC’s permanent secretary told the Public Accounts Committee that HMRC was looking into 27,000 ‘high risk’ cases where serious errors in claims or fraud had potentially occurred. The permanent secretary has also stated that HMRC are working on an assumption of a combined 5-10% error and fraud rate for Scheme payments, which at 7 September put the estimated cost of overpayment and fraudulent claims at up to £3.5bn.

HMRC has begun writing to selected organisations where it has suspicions that too much money has been claimed through the Scheme and this does not appear to be as a result of legitimate mistakes. July saw the first arrests in connection with alleged furlough fraud.

The Scheme has now begun to wind down, with the levels of support available to employers continuing to decrease ahead of the Scheme’s closure on 31 October (see our article ‘Furlough scheme changes include 10 June cut-off date for staff who have not yet been furloughed’ here). Whilst calls have been made for the Scheme to be continued, there are no signs that the government intends to do this at present.

Once the Scheme comes to an end HMRC may be able to direct more resources to auditing claims. Priority will likely be given to finding and prosecuting employers who have intentionally defrauded the Scheme, while employers who have over-claimed due to genuine mistakes will be asked to repay any overpayment )with potential interest and fines being applied. If employers are concerned that they might have over-claimed on furlough funding, they should consider using HMRC’s ‘amnesty’ and repay funding accordingly.

The ‘amnesty’ requires employers to notify HMRC that they have received an overpayment from the Scheme by the end whichever is the latest of:

• 90 days after the date the funding was received
• 90 days after the employer’s circumstances changed resulting in the employer no longer being entitled to keep the grant, or
• 20 October 2020.

Overpayments received from the Scheme must be repaid within 12 months from the end of the employer’s accounting period, or 31 January 2022 if the receiver was a sole trader or a partner.