Deadline to correct mistakes – one week to go!
We are now fast approaching the 20 October 2020 deadline for correcting CJRS claims and the scheme itself is coming to an end. HMRC is planning on stepping up compliance activities and there may be serious consequences for employers who do not comply. Some employers have already been contacted by HMRC where it believes claims are incorrect.
Whether or not they are contacted by HMRC, employers must check their claims and repay any amounts they were not entitled to receive or retain. Employers must be able to demonstrate and evidence their decision making process, that their reasoning and calculations are robust and supported by HMRC’s guidance, and that furlough agreements have been adhered to.
HMRC has confirmed it won’t impose penalties for innocent errors that are corrected – or recover grants based solely on the employer’s choice of pay calculation, provided it’s reasonable. A recent study found a large proportion of employees surveyed had worked whilst furloughed without their employer’s knowledge. As this could disqualify claims, it’s also important to demonstrate furlough agreements have been properly observed.
If the opportunity to make these checks is not taken and HMRC later establish that claims are incorrect, employers will face penalties beginning at 50%, rising to as much as 100%, of the over-claimed amounts, effectively doubling the amount that will have to be repaid to HMRC.
Over the last few months there has been an increasing amount of press coverage about the extent of incorrect and fraudulent CJRS claims. HMRC believe that an estimated £3.5bn has been paid out in fraudulent or erroneous claims and has been encouraging employers to correct any mistakes and over claims.
What do we know?
HMRC has said that it has identified around 27,000 high-risk claims and that it has already commenced enquiries into around 10,000 of these. These cases are likely to have been identified through HMRC’s own risk analysis using Real Time Information data, together with the reported 8,000 calls made to its CJRS Fraud Hotline.
HMRC has been issuing targeted letters, becoming known as nudge letters, sent to those employers whose claims are considered likely to be erroneous or fraudulent. It appears that these letters are being issued in tranches of 3,000 with the first issued in mid- August and it is understood that further similar batches are ready and waiting to be issued. Unlike the scatter-gun approach seen in other nudge letter campaigns by HMRC, this is targeted to those where there is good reason to believe there is a risk.
We have seen lots of innocent mistakes, particularly in the beginning where the guidance wasn’t clear or available to the extent it is now (98 changes have been made to the guidance at the last count!) and we urge employers to take this opportunity to review and correct.
The nudge letters typically suggest that based on information held, the taxpayer’s CJRS claims may be erroneous and come with a clear warning that a failure to respond within 30 days may result in a formal compliance check. If this happens it is highly unlikely that these checks will be confined to the CJRS claims and will almost certainly extend to other areas of the business as well, particularly where HMRC believe the cause of the error may be fraudulent activity.
The letters appear to indicate that HMRC are approaching this from a ‘customer care’ perspective and that not all mistakes are fraudulent, but they will take action where they believe the mistakes are more serious and I can see that referrals will be made to HMRC’s Fraud Investigation Service with some being escalated for criminal investigation.
Where might CJRS errors have occurred?
If you have been approached by HMRC then they are holding information which has led them to come to this conclusion. Ignoring HMRC will mean that potential penalties and interest will be higher and may lead to greater scrutiny of your records and procedures.
The likely areas that HMRC will focus on are:
- Ghost employees – either intentionally or not, HMRC may believe that you have employees who are not on their records, but have been claimed for
- Amended end of year returns – this might cause confusion with HMRC’s records and create mismatches
- Eligibility of employees – did all of the employees meet the eligibility criteria
- Mistakes in calculations – these might include ineligible pay elements in reference pay (e.g. tips); incorrect treatment of salary sacrifice arrangements (when calculating reference pay or making furlough payments); or incorrectly calculating ‘usual hours’ for flexibly furloughed employees
- Employees working whilst on furlough – this is where HMRC believe a number of employees have worked during the claim period, when they were meant to be on furlough
What action should you take – now!
If you think you might have made a mistake then you need to correct it urgently. Employers can offset amounts to be repaid to HMRC against any subsequent claim. If no further claims will be made the employer can make a direct payment to HMRC.
If you have received a letter then it should not be ignored; these are a final opportunity for review and correction prior to HMRC intervention.
I would recommend that if you are concerned or have received a letter then you take advice from your advisor. Dave Wase or I would be happy to support you and review your records and claims. Our Croner Taxwise insurance can also provide you with protection against a future compliance checks and we could also discuss this with you.
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