The CJRS pays 80 per cent of employees’ wages (up to a maximum of £2,500 per month) for the hours they cannot work during the pandemic. In the 2021 Spring Budget, Chancellor Rishi Sunak announced the CJRS would be extended to the end of September 2021, although the amount the Government will fund reduces from 1 July 2021. In July 2021 the Government contribution will be fixed at 70% of wages up to a maximum of £2,187.50 per month and in August and September 2021 the amount will be fixed at 60% of wages up to a maximum of £1,875 per month.
Given the number of changes there have been to the scheme since it was first introduced, there are likely to be a significant number of cases where people have inadvertently made incorrect claims and the repercussions could be long-lasting.
HMRC have received over 21,000 reports of misuse and have begun issuing thousands of enquiry letters checking that furlough claims have been made correctly. It is only right and proper that those who have made false claims should be caught and penalised. However, not all such complaints have substance and HMRC will be wary of the possibility that the complaints are themselves untrue and represent a backlash from employees who have lost their jobs.
With the CJRS having paid out more than £61bn to date, the Government intends to clawback as much money as possible from those whose claims were wrong. And the proposals for clawback are not confined to instances where the claim was fraudulent – it applies to cases where there has been a lack of proper care as well. As such, nobody who has received these grants should be complacent.
HMRC have written to thousands of employers they believe may need to repay some or all of their CJRS grant, as part of their risk assessment and compliance activity in relation to the scheme. This is likely to be the first stage in HMRC’s planned compliance activity and it is almost inevitable that more employers will be contacted in future – particularly given the significant number of businesses who have claimed under the scheme and the huge costs to date.
The letters are being sent to businesses in relation to whom HMRC’s risk assessment tools suggest that:
- The CJRS grant claimed may have been too high and/or
- The conditions for receiving a CJRS grant may not have been met.
The aim of the letters is to ensure that employers review their CJRS claims and engage in a dialogue with HMRC, whether they think they have made a mistake or not.
The Government is proposing that the grants are taxable so that where the recipient should not have been entitled to the grant in the first place, or has used the funds inappropriately, the full amount of the grant is subject to Income Tax at a rate of 100%. This will effectively clawback the entire amount of the grant. The regime is also retrospective – applying to all grants made under the scheme.
Imposing the clawback by way of treating the grant as taxable allows HMRC to impose its normal investigation, assessment, and penalty regime to wrongly made claims. This means that HMRC will be able to assess the tax due (and thereby impose the clawback) within four years after the grant was made in the case of an innocent error, six years if the error was careless, and twenty years if the claim was fraudulent. In cases of fraud, HMRC may involve the police and prosecute. This might be using the Corporate Criminal Offence (CCO) legislation which allows the indictment of a company for the facilitation of tax evasion even in circumstances where senior management was unaware of the offence, unless the company could demonstrate that it had reasonable preventative measures in place. In certain circumstances companies and individuals may also be treated as ‘deliberate defaulters’ and be publicly named on HMRC’s website.
Businesses are therefore required to notify HMRC if they know (or discover) that they have received a grant to which they were not entitled. Penalties will apply for failure to notify.
It is likely to be a major problem for some who are investigated and receive assessments. Once the assessment is issued, the burden of proof will be on the taxpayer to show that it is wrong. A combination of the lack of clarity in certain aspects of the detailed rules of the scheme, and the length of time which may elapse before an HMRC investigation is complete, may make it very difficult to prove entitlement to the grant.
It is therefore vital that the accuracy of claims is considered now.