Those with furloughed employees will have made claims from the Government under the Coronavirus Job Retention Scheme (“CJRS”). In doing so, they have ticked a declaration that it is correct and done in accordance with HMRC’s guidance.
CJRS has been implemented quickly, is generous and will save jobs and businesses. Employees will receive some pay and employers will receive state benefits to fund that pay. What might go wrong?
Para 6.1(a) of the Treasury Direction says “An employee is a furloughed employee if…
the employee has been instructed by the employer to cease all work in relation to their employment”
HMRC’s guide says “The employee cannot do any work for the employer that has furloughed them.”
There is a relaxation of this for furloughed directors, due to their statutory duties, but not for staff.
Just a little bit of work?
If we ignore those who purposely abuse the scheme, are there some employers mistakenly not meeting the CJRS requirements? If so, are they exposed to refunding the furlough payments, penalties or even criminal charges (eg Fraud Act 2006 or Theft Act 1968)? Additionally, there may be consequences under the Criminal Finances Act 2017, for others who may have assisted in making the claim.
Are some taking the view that “just a little bit of work” is fine, “how will HMRC find out” or “surely HMRC are not going to attack a struggling business and put employees’ jobs at risk”?
HMRC will check
My general outlook to reduce risk is to assume HMRC know everything that you know, plus a little bit more!
But, more specifically, are there email trails, mobile phone records, social media posts, disgruntled employees, suppliers notes and third party evidence that will show that an employee has done some work? What if HMRC interviewed staff or customers? What if your accountant notices it and insists that you correct and reduce the claim?
Even if the risk of penalties and prosecution is thought to be low, would bad publicity affect the business? Would there be public sympathy or not? It is easy to see, in say 2023, political pressure to be seen to have policed the scheme robustly, including carrying out at least some prosecutions.
Casual risk messages
I have seen or heard phrases along the lines of “I’m furloughed at the moment but I’m just doing…XYZ”. If I hear such open public statements, fortunately not from any clients (yet!), it will be easy for HMRC to also see and hear these, to trigger or assist in an enquiry into CJRS.
Managing CJRS risk – a few tips
- Review the furlough letter agreed by the employee – does it state that no work is to be done?
- Is there an audit trail to show that no work is done?
- Does the employer and employee know that “no work” = no work?
- Is an “out of office” set and furloughed employee email accessed by, or diverted to, non-furoughed staff?*
- Is it clear that client or supplier enquiries to the employee are diverted to non-furloughed staff?
- Even if funds are tight, discuss the CJRS process and application with a specialist with knowledge of HMRC tax investigations (in writing this, I’ve spoken to Jon Preshaw, who can be contacted here and I also thank him for his very useful input).
*HMRC confirmed (although only by the webchat function) that a furloughed employee checking email, to forward on to an unfurloughed employee to action is fine, as long as it is not worked on by the furloughed employee. [items in green updated 30 April 2020]
Update June 2020: the draft legislation pushes known errors, not reported with 30** days, into the deliberate and concealed penalty category. This could result in a 100% penalty, in addition to the refund of CJRS support. For larger amounts, this could also trigger the “naming and shaming” rules. The ATT response to the draft legislation consultation is worth a read.
**Update July 2020: the 30 day rule has been extended to 90 days but the other provisions still apply (see clause 106 and sch 16 of the Finance Bill, which should receive Royal Assent in July).