CJRS and SIESS - Warnings against fraudulent claims

Updated on 24 June 2020

New measures are being put into place to tackle abuse of the government’s Coronavirus Job Retention Scheme (CJRS) and Self-Employed Income Support Scheme (SEISS).

On May 29, HMRC released draft legislation aimed at penalising abuse of the government support. This draft law also gives HMRC powers to investigate abuse of those schemes, raise assessments to claw-back SEISS or CJRS grants claimed incorrectly or where the grant has not been paid to furloughed employees. Where the claimant is a company, the company officers can be made jointly and severally liable for the tax charge that claws-back the incorrect claim.

The legislation will introduce a 30-day window of opportunity for businesses to ‘confess’ of any errors or deliberate abuse. After this period, HMRC is expected to use its existing powers to recover overpayments and penalise fraudsters.

What kind of fraud is furlough fraud?

Examples of furlough fraud include:

  • Asking a furloughed employee to return to work as a ‘volunteer’ without pay
  • Furloughing an employee (with or without the employee’s knowledge) and they continue to work as normal
  • Furloughing staff and not paying them what they are owed under the scheme
  • Employers making backdated claims that include periods in which the employee was working
  • Employers pretending to hire staff shortly prior to the qualifying period to take advantage of the payments
  • Not paying the full amount received from HMRC to the employee

Retrospective audits by HMRC

As stipulated in CJRS guidance, HMRC will retain the right to retrospectively audit all aspects of an employer’s claim. Although it is unknown the degree to which HMRC will audit claims, considering the likelihood of fraudulent claims, and huge amounts claimed under the scheme, HMRC will most likely undertake wide-ranging and extensive investigations.

Consequences of fraudulent claims

Businesses, as well as their directors and officers, risk criminal investigation, prosecution, heavy fines, and criminal convictions for declarations made which are proven to be incorrect and/or misleading.

Where the error is not notified to HMRC within the 30-day period, the penalty imposed will be between 30% and 100% of the tax charge that claws-back the grant, where a voluntary disclosure is made. Where HMRC prompts the disclosure, the penalty will be between 50% and 100% of the tax charge. In summary, an employer who breaks the CJRS rules will have to pay tax charges and penalties of up to 200% of the amount over-claimed. But perhaps worse, where a 50-100% penalty is charged, companies and individuals may be treated as “deliberate defaulters” and be publicly named on HMRC’s website.

Directors who have made a false claim under the CJRS will also likely have breached section 2 of the Fraud Act 2006, pertaining to fraud by false representation. If such enforcement is actioned, directors, if found guilty, may be subject to a fine, community order and/or imprisonment depending on the severity of their fraudulent conduct. In the most severe of circumstances, this may lead to possible director disqualification proceedings on the grounds of unfitness.

Next steps

It is understood that HMRC had received around 1,900 reports of fraudulent claims under CJRS to the end of May 2020, so it is clear that it will want to be seen to take action on these cases urgently once the legislation is in place.

While it is possible that the notification deadline for errors made with support claims will extended (beyond 30 days) as the legislation goes through Parliament, it is clear that businesses and individuals should check carefully that they were indeed eligible for the Government support payment that they received and have not over claimed. It makes sense to be ready to notify HMRC about such errors as soon as the notification mechanism becomes available.

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