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.
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