Government Considering Penalties for Fraudulent Furlough Claims

Added: 26th June 2020

The government has reported that since April 2020 HMRC have received more than 3,000 fraudulent claims from companies claiming financial support through the Coronavirus Job Retention Scheme (CJRS). Chancellor Rishi Sunak is now considering giving tax officials at HMRC powers to hand out harsher punishments to offenders. 

Legislation is anticipated to be introduced through amendments to the current Finance Bill 2020, which is expected to become law in early July 2020. Rule breakers will risk breaching legislative provisions on the existing furlough scheme as well as any future amendments to the scheme. 

The recently published draft of changes to the Finance Bill states that HMRC will have “powers to make a company officer jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which was never intended to be used to pay furloughed employee costs in certain circumstances”. 

While there is no specific ‘furlough fraud’ criminal offence until the Finance Bill 2020 becomes law, the common offences committed amongst the fraudulent claims reported amount to ‘fraud upon the Revenue’ or ‘fraudulent misrepresentation’. 

Employers found guilty of such may face charges under:

Conspiracy to defraud; a common-law offence with a maximum sentence of 10 years.

Fraud Act 2006 (section 1); a statutory offence with a maximum sentence of 10 years

Cheating the public revenue;  a common-law offence with a maximum sentence of life imprisonment

The purpose of the CJRS or ‘furlough’ scheme is to reduce the number of redundancies caused by the coronavirus outbreak by financially supporting companies to maintain their workforce where there is no work for them, allowing staff to be ‘furloughed’ because their premises have been forced to close. Companies can then claim the government grant covering up to 80 percent of each furloughed employees’ wage up to a value of £2,500 per employee per each furloughed period.

While they are on furlough, staff are not permitted to carry out any work for the company, however investigations by the government together with reports from ‘whistleblowers’ have revealed that some organisations have been forcing their staff to continue working whilst the company claims CJRS support. ‘Flexible furlough’ has different rules which does allow employees to work part-time whilst on furlough, however organisations should not be implementing flexible furlough until 1 July 2020. 

Lawya Ltd, owners of the legal rights app Lawya.com, discovered in an independent survey on 2,000 furloughed employees that approximately one in three furloughed employees felt they were under pressure to continue working. 27 percent said they were asked to send and/or respond to emails and 17 percent said they were asked to make phone calls whilst on furlough.

Other types of ‘furlough fraud’ include:

not informing staff that they have been furloughed 

backdating CJRS claims to when the employee was working

failing to prove, when asked, why the organisation needs to make a claim under the scheme

Critical experts from within the legal sector have said that while the government had needed to act quickly to provide the support to businesses and their employees, the speed at which the scheme was introduced meant there was a degree of uncertainty and a lack of clarity.

HMRC have responded by saying that they will offer business owners who believe they may have claimed mistakenly under the CJRS or the SEISS (Self Employed Income Support Scheme) an amnesty of 30 days from making an error to admit their mistakes, make the corrections and ensure that their claims are accurate ands lawful. It is proposed in the draft changes to the Finance Bill that penalties will not be applied to companies that self-declare during the amnesty.