FurLaw: how might HMRC respond to companies who are abusing the Coronavirus Job Retention Scheme?

The Coronavirus Job Retention Scheme (CJRS) is by far and large the biggest government rescue fund for employment in our history and is estimated to have cost a total of £19.6 billion.

Implemented to preserve as many jobs as possible, more than one million firms UK-wide have made use of the scheme, applying for the government to pay 80% (up to £2,500) of an employees’ wage, if the business has been affected by the COVID-19 pandemic.

Unfortunately, it has been reported that around one-third of furloughed employees have been asked to commit furlough abuse during this period. Partner and Head of Employment Law, Catherine Kerr, explores the topic further and predicts that the HMRC will not allow this abuse to go unnoticed.

What is furlough abuse? 

In simple terms, furlough abuse is when an employer is claiming payment from the CJRS for an employee even though the employee is still undertaking tasks on behalf of their employer.

The CJRS was implemented with straightforward terms; it was to be used in cases where there was ‘no work’ to be done by the employee, and as such, they should not work while on furlough leave.

Potential incidents of abuse include asking an employee to continue working while on furlough leave or asking an employee to agree to a 20% pay-cut and claiming the cost through the CJRS as though they were furloughed.

Potential ramifications

This issue has been brought to light in recent months, with the public urging the Prime Minister and his government to shed some light on how perpetrators of furlough abuse will be dealt with.

Legislation is currently being rushed through to introduce a 30-day window of ‘confession’ starting in July for those employers who have abused the furlough scheme. Following this, there are further plans to introduce legislation to impose penalties and pursue directors of insolvent companies personally.

However, further ramifications for abuse could likely include;

• Unlimited fines
• Repayment of the misappropriated funds
• Future CJRS payments being withheld
• In extreme cases, up to ten years imprisonment

Flexible furloughing 

With the introduction of flexible furloughing, it is hoped that we will see a reduction in the number of employers who are abusing the furlough scheme. Effective from 1st July, the government is slowly phasing out its furlough payments, inviting employers to begin paying towards their employee’s wages and bringing them back to work on a part-time basis.

In a nutshell, from August employers will be expected to cover national insurance and pension contributions then from September the CJRS will be reduced to 70% of wages (subject to a cap) and from October the contribution will reduce to 60% (subject to a cap) before being phased out completely by 1 November 2020.

HMRC investigations 

Any employee who has been asked to work by their employer while on furlough leave should be encouraged to report this to the HMRC Fraud Department anonymously. This whistleblowing scheme will investigate companies making potentially fraudulent or erroneous claims, and deal with them accordingly.

The unfortunate reality is that some employees may have felt emotionally blackmailed into continuing to work during their furlough leave, for fear of losing their jobs later down the line.

I would imagine that the HMRC will continue to undertake checks and audits to ensure that any businesses abusing the scheme are caught.