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The Sleeping Giant – HMRC and COVID-19

HMRC is currently making very welcoming noises about the deferring of tax payments, suspension of tax enquiries and generally being open and forgiving in the current COVID-19 climate. However, this should not lull businesses and taxpayers into a false sense of security that this will last forever.

As the flurry of claims for the Coronavirus Job Retention Scheme (CJRS) are processed by HMRC and monies are paid out, it would be easy to think that we can all be at ease with the way the Government is helping all with open arms.

Increase in investigations going forwards?

It is expected that there is going to be a sting in the tail. With the cost to the Government reported to be close to £250bn by the end of the pandemic, they will be keen to claw back as much of this as possible to aid public finances and will partly rely on HMRC to do so. The phrase ‘one hand giveth, the other taketh away’ is likely to be very apt as the business and social landscapes start to return to normal.

On HMRC’s CJRS guidance, the phrase ‘HMRC will continue to monitor businesses after the scheme has closed’ should be read that they will be looking to check whether employers have adhered to the conditions on furloughing employees where claims have been made.  It should not be assumed that the current checks being performed to validate the claims means that they will not be looked at again. HMRC will target businesses where incorrect claims for CJRS were made and could seek to recover some, or all, of the claim.

Prior to the COVID-19 pandemic, HMRC’s general attitude towards enquiries was getting noticeably more aggressive as they sought higher tax revenues and increased penalties. It would be expected for this to continue in the future where HMRC believes any individual or business has not adhered to the CJRS rules.

HMRC could seek to recover payments where they believe the conditions have not been adhered to, where the calculation for the claim was incorrect, or if they suspect an employer has deliberately sought to take advantage of the scheme when they shouldn’t. It is therefore imperative that clear and detailed records are kept by employers on how they have dealt with furloughing.

Record keeping – what information is needed?

As this is unchartered territory, there are no specific guidelines on what information about a claim for CJRS should be kept, however it is suggested that as a minimum, clear records should be kept to demonstrate:

  • How the claim for CJRS has been calculated for each employee, including any third party advice received about the validity of the claim
  • What the employee’s role in the business was and how the COVID-19 crisis has affected their role
  • Evidence to demonstrate the employee has been furloughed and are aware of the restrictions placed on them whilst they are furloughed, this should always be in writing
  • Any other evidence or circumstances to demonstrate that the furloughing procedures have been adhered to

This information would need to be kept for at least 6 years in line with the standard requirement for retention of business records.

‘Whistle-blowing’

HMRC has provided guidance for employees about how to report fraud if an employer is abusing the scheme. For example where the employer is claiming under CJRS and still expecting employees to work, or is not paying the employee what they are entitled to under the scheme despite a claim being made. HMRC is expected to take tough action against employers who seek to exploit the scheme and will be making use of any reports made to them. Should an employee file a malicious report, then the benefit of keeping good records will be crucial in defending such an accusation.

How we can help

Our specialist Employer Solutions team is on hand to answer any queries you have to ensure you are compliant with the CJRS rules and our Tax Investigations and Disputes team can assist with any follow up received from HMRC in the future.

The dedicated COVID-19 hub on our website is being continually updated so be sure to check this regularly for news and articles on both the CJRS and other important areas during this time.

FEATURING: Dave Wase
Dave joined PKF Francis Clark in October 2018 after a 27 year career working for HMRC. Working as part of the tax advisory investigations team,… read more
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