Furlough fraud: who will pay the price?

As the Government pushes to fast track legislation to tackle widespread furlough fraud, we consider the emergency measures and ask, who may end up paying the price for fraudulent claims?

Summary

  • What measures are included in the Finance Bill 2020 to tackle furlough fraud?
  • What exactly may company directors be held liable for as a result of the new measures?
  • What protections exist for those who disclose furlough fraud?

The COVID-19 pandemic has impacted on every part of the UK economy. On 20 March 2020, in an effort to protect millions of employees from redundancy, the Chancellor announced the Coronavirus Job Retention Scheme (“CJRS”). This was followed shortly by the Self-Employment Income Support Scheme (“SEISS”) on 26 March 2020. These measures were followed by a package of Government grants including the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund, and the Discretionary Grant Fund.

Current figures[1] indicate that a total of 9.3m jobs have now been furloughed under the CJRS at a total cost of £25.5bn. However, a recent survey of 2000 employees by Crossland Employment revealed that 34% of employees have been asked by their bosses to work while being furloughed by their company. In addition, HMRC has received over 3000 complaints from furloughed employees since April 2020.

[1] Correct as at 28 June 2020

Government legislation

In the face of such widespread fraud, the Government has taken steps to address the impact including rushing through measures within the Finance Bill 2020 confirming the taxation of payments made under the relevant schemes, and giving HMRC the power to impose significant penalties on those caught deliberately defrauding the system.  The Finance Bill 2020 is due to come into law by the end of June 2020.

By treating payments under the CJRS and SEISS as taxable, the Government (through HMRC) can utilise the already established procedures of income tax assessment to claw back excess or wrongly claimed payments by imposing a 100% tax on those erroneous payments. In this way HMRC will be able to check that grants made to employees through the CJRS scheme have been used correctly to pay workers’ wages (and not been redirected into the business), and to ensure employers (or those who are self-employed in the case of the SEISS scheme) have not been overpaid.

“Failure to notify” penalties

The legislation introduces a “grace” period of 30 days in which employers may confess to any erroneous claims without penalty. The proposed 30-day deadline will run either from the date the Finance Bill 2020 receives Royal Assent, or the date of payment (whichever is the earlier).

In cases of deliberate concealment, where there is a failure to notify HMRC, individuals and businesses face penalties of 30-100% (where there is voluntary disclosure after the deadline) or 50-100% (where disclosure was prompted after the deadline). In circumstances where disclosure had to be prompted and the higher penalty is charged, HMRC may publicise names of companies and individuals on its website.

HMRC will be able to charge a penalty in cases of deliberate non-compliance. However, the penalty will only apply if the person fails to notify HMRC within the 30-day period.

Whistleblowing

There have been numerous stories in the press of employees being asked to work whilst being furloughed and when employees have refused, they have been threatened with losing their jobs. Adequate protection for whistleblowers supports good corporate culture which in turn reduces a business’ exposure to financial crime.

In the UK, whistleblowers are protected when making a “protected disclosure” being a disclosure of information which in the reasonable belief of the worker tends to show one of six categories of behaviour including committing a criminal offence and failing to comply with a legal obligation.

Furlough fraud would fall into the “protected disclosure” category and therefore employees should feel confident in speaking out. However, the ability to bring a claim for unfair dismissal in the event an employee loses their job as a result of uncovering furlough fraud may not bring much comfort at a time when the UK is facing its biggest economic crisis and new jobs will be scarce.

If you are a director concerned about conduct of fellow directors or an employee needing advice about concerns you have in relation to your employer’s conduct, do contact us at hello@tenetlaw.co.uk or any of our team.

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