The Furlough Fraud Risk: HMRC Has Cast Their Net - What Can Retailers Do?

WHAT IS HAPPENING?

While the government's Coronavirus Job Retention Scheme and Self-Employment income Support Scheme (CJRS and SEISS respectively) have provided a valuable lifeline to many since their introduction, the initiative has been described as a "magnet for fraudsters" by HMRC officials.

The speed with which both schemes were implemented (a necessity at the time, given the urgent threat to employment caused by COVID-19) left them vulnerable to both deliberate and unintentional abuse. Examples of misuse of the schemes include placing employees on furlough and then requiring them to continue working as normal, pressuring employees to work on a 'voluntary' basis, and claiming on behalf of employees without their knowledge. Given the levels of confusion and misunderstanding that have surrounded the schemes, HMRC expects there to be a large number of claims which, whilst made in good faith, do not satisfy their rules.
 

WHY DOES IT MATTER?

HMRC now has extensive enforcement powers under the Finance Act 2020 and has already identified £3.9bn worth of furlough fraud which it intends to recover (although HMRC does not expect to have a complete picture of the true extent of fraud and error under the schemes until the end of 2021 at the earliest). Given the high uptake of the scheme in the retail sector, we expect retailers to be well within HMRC's sights now that investigations are underway. HMRC's enforcement powers allow it to investigate suspected false claims, claw back payments, and to impose significant penalties in the most serious cases. An amnesty period for self-reporting claims made in error closed on 20 October 2020. Penalties going forward are expected to start at 100% of the sums incorrectly claimed; where remedial action is taken swiftly this may be reduced but the penalty will not fall below 30%.
 

WHAT ACTION SHOULD YOU CONSIDER?

1.   To understand what potential exposure exists, review any claims made under the schemes.

2.   Collate, on a continuing basis, any documents and communications to bolster your audit trail of decision making in relation to claims.

3.   Although claims made in genuine error can expect some understanding from HMRC, where retailers suspect they have mistakenly claimed under the schemes they should seek legal advice as soon as practicable to ensure they can assist HMRC to the fullest extent, without inadvertently harming their position.

To find out more, visit the Spring 2021 edition of Retail Compass.