The Governments Job Retention Scheme (also known as the furlough scheme) was a lifesaver for many employees and small businesses in the UK during the COVID pandemic. It provided vital funding for employers at a time when they were unable to generate revenue and kept workers employed when they might have otherwise been made redundant.
But the scheme was rife with fraud, with businesses claiming furlough when staff were working and defrauding the Government of millions of pounds of taxpayers’ money. To combat this, HMRC put in place a series of fines (also known as furlough penalties) to punish those who exploited the Job Retention Scheme and to recoup the money lost through fraud.
But what are furlough penalties and how are thy administered? We will look to answer this question and many more in our complete guide to furlough penalties in the UK.
Let’s get started.
What exactly was furlough?
Furlough, in general terms, means a temporary leave of absence by employees due to the special needs of a company or employer. The Government’s Job Retention Scheme was a temporary fund for those businesses who had to ask their employees to take a leave of absence due to the Coronavirus pandemic.
Why did Coronavirus need such an extensive furlough scheme?
The Coronavirus pandemic hit the economy hard. With many employees forced to stay at home due to Government guidance and lockdowns, companies were left footing the bill for workers who couldn’t work and businesses that couldn’t function.
This is why the government had to step in to help out with the Coronavirus Job Retention Scheme.
How did the Coronavirus job retention scheme work?
The Coronavirus Job Retention Scheme provided financial support to businesses during the coronavirus pandemic.
All UK companies were eligible to apply for it and were given the option to furlough their staff whilst the pandemic was in full swing.
The terms of the scheme saw the Government pay employers a specific amount for their employees so that wages (at least part of them) could still be paid whilst employees were furloughed and unable to work.
How much was the Government furlough scheme?
Whilst there was some variation throughout the pandemic, the general amount that HMRC would pay the employer was 80% of the employee’s wages, up to £2,500 a month. This was reduced later in the pandemic before being stopped altogether.
What exactly is furlough fraud?
The Government in its directives to companies has clarified that the following acts represent an over-claimed furlough award, which may lead to corruption or a furlough investigation:
- Any sum that the contractor was not eligible to obtain.
- Any sum that the contractor is no longer eligible to obtain following a change of conditions, e.g., a worker who is no longer working for the company or is actually working whilst the business is stating that they are furloughed.
The Government has implemented measures to help with the rehabilitation of overpaid funds.
What if I’ve made an honest mistake?
The priority of the HMRC is to resolve non-compliance with the policy but it is not obligated to look at “honest mistakes”. If you think you have made an honest mistake, the best thing to do is correct it at the earliest opportunity, which needs to be:
- Businesses will have until 12 months from the conclusion of their accounting cycle to correct mistakes.
- The independent contractors or associates shall have until 31 January 2022.
As a worker, can I be fined for furlough fraud?
Workers cannot be held responsible for a penalty whether they knew about the fraudulent claim or payment at the moment they earned it, or whether their conditions modified, even if they are credited for the furlough payment by their employer.
What are the penalties of furlough fraud?
Although mistakes can be corrected, not doing so can result in penalties, such as:
- Increased income tax payments—The full amount overclaimed may be retrieved by the HMRC through income tax payments. Reimbursement can be made in full within 30 days after the fraud judgment, or debt will be automatically taken from taxes from day 31.
- Business officers may, in the event of insolvency, be held directly responsible for payment of the tax paid on overclaimed grant and a fine issued to the amount.
- The publishing of details of those organisations who have deliberately overclaimed, which may impact on the company’s reputation.
- Penalties and fines of up to 100% of the amount the business overclaimed.
What does the law say about furlough fraud?
Fraud accusations are an extremely serious matter and can have long-lasting repercussions for any business.
Under the Fraud Act 2006, there are three criminal offences that could relate to furlough fraud:
- The first is fraud by false representation, which could involve claiming for non-existent employees, claiming for employees who didn’t go on furlough or claiming for more hours than employees worked.
- Fraud by failing to disclose information. This offence could be committed if a change in circumstances impacted furlough funding eligibility but was not communicated to HMRC.
- If multiple people were involved, the charge could be conspiracy to defraud, when a ‘false statement is made with the intention of cheating the public revenue’.
A business could also face other potential charges include false accounting and even money laundering.
What powers do HMRC have when investigating furlough fraud?
HMRC has wide-ranging powers to investigate furlough fraud and can:
- Request business records including emails to verify if an employee exists and/or if they have continued to work despite being on furlough.
- Conduct searches of business premises.
- Interview suspects under the Police and Criminal Evidence Act 1984.
- Claw back payments and impose financial penalties on businesses for both fraudulent and wrongful claims under the Scheme pursuant to the Finance Act 2020.
The furlough scheme was a lifeline for many small and medium sized businesses but was easy all too easy to exploit by those looking to defraud the government.
We hope you have found our guide to furlough fraud useful. For more handy workplace guides, check out the rest of our website.
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