Avoiding furlough fraud: important details for organisations

The furlough scheme was put in place to support employers who were not able to operate as normal due to the pandemic. However, some organisations may have overclaimed, potentially unintentionally, and could face sanctions if this is not reported and rectified.

The government is committed to investigating situations where organsaitons have been overpaid grants provided as part of the Job Retention Scheme. Given the cost of the scheme, which continues to increase, it likely comes as no surprise that all organisations, large and small, potentially face high levels of scrutiny regarding their use of it.

The Government has explained that the following actions constitute an overclaimed furlough grant, and thus could lead to furlough fraud:

  • claiming any amount the organisation was not entitled to receive; or
  • claiming any amount the organisation was no longer entitled to receive, such as because the employee they are claiming for is no longer employed by them.

Employers will not be charged a penalty if they did not know of the overpayment at the time it was received, or at the time that their circumstances changed, and if it is repaid within the relevant time periods. Companies will have until 12 months from when their accounting period ends to rectify errors, and sole traders or partners will have until 31 January 2022.

On 1 July, HMRC updated its guidance on the furlough scheme to enable organisations who have overclaimed through the scheme to either correct this error in their next claim or make a payment directly to HMRC if they will not be making any future claims. Organisations will, however, first need to contact HMRC to receive a payment reference number before paying via bank transfer, online or telephone banking

Whilst errors can be rectified, failure to report this can incur such penalties as follows:

  • income tax charge – full overclaimed amounts may be recovered if HMRC make a tax assessment for the amount overclaimed, of which payment of the assessed amount will be due 30 days after the assessment (otherwise interest will be charged on the tax from day 31)
  • personal liability for company officers to pay the tax charged on overclaimed grants in the case of insolvency
  • a 100 per cent penalty for failing to notify HMRC, within the below notification period, that the organisation is chargeable for income tax on an overclaimed furlough grant.

Additionally, it has been confirmed that partners will be jointly and severally liable for any overclaimed grants repayable.

If organisations repay monies overclaimed, this will prevent any potential tax liability relating to the overpayment of the grant. Notification of any overclaimed furlough grant payments need to be made within any of the following notification periods: 90 days after receiving the overclaimed payment, 90 days after the day circumstances changed, or 20 October 2020.

Job Retention Scheme bonus – All you need to know!

The Chancellor of the Exchequer, Rishi Sunak, released his ‘Plan for Jobs’ on 8 July 2020 to set out how the government will support economic recovery in the UK. One of the elements included was a new Job Retention Bonus (JRB) to provide additional support to employers who keep on their furloughed employees in meaningful employment, after the government’s Coronavirus Job Retention Scheme ends on 31 October 2020. These FAQs are written based on the guidance published by the Government on 31 July 2020. More information is set to be released in September 2020.

Which employers can claim it?

All employers who furloughed staff are eligible for the JRB including recruitment agencies and umbrella companies.

Employers should ensure that they have:

  • complied with their obligations to pay and file PAYE accurately and on time under the Real Time Information (RTI) reporting system for all employees
  • maintained enrolment for PAYE online
  • a UK bank account

Failure to maintain accurate payroll data may jeopardise a claim so it is important that you keep your payroll up to date and address all requests from HMRC to provide missing employee data in respect of historic Job Retention Scheme claims.

Is there a limit on the amount of employees I can claim for?

No, there does not appear to be at this stage.

Is there a limit on the size of employer who can claim the bonus?

No, there does not appear to be at this stage.

Which employees can I claim the bonus for?

Employees must be eligible for the Job Retention Scheme and you must have claimed a grant from the Scheme for them. Government guidance says that this includes office holders, company directors and agency workers, including those employed by umbrella companies.

The JRB can be claimed for employees who:

  • were furloughed and had a Job Retention Scheme claim submitted for them that meets all relevant eligibility criteria for the scheme
  • have been continuously employed by you from the time of your most recent claim for that employee until at least 31 January 2021
  • have been paid an average of at least £520 a month between 1 November 2020 and 31 January 2021 (a total of at least £1,560 across the 3 months). The employee does not have to be paid £520 in each month, but must have received some earnings in each of the three calendar months that have been paid and reported to HMRC via Real Time Information
  • have up-to-date RTI records for the period to the end of January 2021
  • are not serving a contractual or statutory notice period, that started before 1 February 2021, for the employer making a claim.

Can I claim the bonus for those categories of people who were excluded from the 10 June ‘first time furlough’ cut off date?

Yes. The Job Retention Scheme included a cut-off date on 10 June 2020 after which no employee could be furloughed for the first time. Those on maternity, paternity, adoption, shared parental or parental bereavement leave which started before and ended after 10 June were exempt from the cut off, as were those employees who were on a period of mobilisation with the Reserve Forces which started before and ended after 10 June. Employers can claim the JRB in relation to these employees whose furlough started after 10 June 2020 provided they meet all other criteria.

Are the rules any different for fixed term employees?

You can claim the JRB for employees on fixed term contracts that are extended or renewed provided that continuity of employment is not broken and all other criteria are met.

I transferred some employees to my business under TUPE recently, can I claim the bonus for these employees?

You will be able to claim the JRB for employees who were transferred to you under TUPE law provided that you, as the new employer, furloughed the employee and successfully made a claim to the Job Retention Scheme for them.

This also applies to employees of a previous business who transferred to the new employer where the PAYE business succession rules applied to the change of ownership.

In both cases, the employees must have transferred on a date which falls by the end of the Job Retention Scheme i.e. by 31 October 2020. You cannot claim the JRB for any employee who transferred after 31 October 2020.

What earnings count towards the £520 per month minimum limit?

This is restricted to earnings recorded through HMRC Real Time Information (RTI) records. More detailed guidance on this will be published in September 2020.

How much is the bonus?

It is a one-off payment of £1000 for every furloughed employee who meets the criteria set out above. If you have furloughed many staff who meet the criteria, the bonus could total several thousands of pounds.

Is the bonus taxable?

Yes. If you receive the JRB, you must include the whole amount as income when calculating your taxable profits for Corporation Tax or Self-Assessment.

When can I claim the bonus?

From February 2021. You will be able to claim it through gov.uk. More information on this will be published in September 2020.

What should I do to prepare for claiming the bonus?

You should make sure your employee records are up-to-date, and are accurately reporting your employee’s details and wages on the Full Payment Submission (FPS) through the Real Time Information (RTI) reporting system. You should also make sure all of your claims to the Job Retention Scheme have been accurately submitted and that you have notified HMRC of any necessary amendments to your claims.

Is there anything which may prevent the bonus being paid to me?

HMRC will withhold payment of the JRB where it believes there is a risk that Job Retention Scheme claims may have been fraudulently claimed or inflated, until they have completed an enquiry.

Where a claim to the Job Retention Scheme was incorrectly made, the JRB will not be paid.