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Missing £3.5 billion could just be the tip of the iceberg

The missing £3.5 billion that HMRC has estimated to be fraudulently claimed or paid in error may be just the tip of the iceberg, says Fiona Fernie.

Some £35 billion has been paid out to protect jobs during the pandemic; just how much off this has been erroneously claimed is not yet clear but HMRC say that it could be up to 10%.

However, this figure is purely an estimate and has been issued just a couple of weeks after HM Revenue & Customs issued the first 3,000 letters to firms asking them to check the amounts that they had claimed and warning them that they were under investigation.

With many more businesses already under review with a view to investigation, it remains to be seen whether the estimate is accurate. Only once the investigation programme is fully under way will it be possible to assess whether the problem is greater than currently anticipated.

HMRC have set up a furlough scheme task force which is looking at the huge amounts that have been wrongly claimed to get as much of the money back into the Chancellors coffers as possible.

Just because a firm has not yet received a letter does not mean that they won’t get one shortly and as the furlough scheme comes to an end and people lose their jobs, many disgruntled employees may turn on employers who they know abused the scheme. HMRC is encouraging anyone who feels their employer may have been fraudulently claiming furlough to report it.

HMRC has already received over 8000 calls on its fraud hotline claiming abuse of the system, but it has also been using its own risk analysis techniques to identify potential abuse, which has identified 27,000 cases where they think there is a risk of serious error.

The CJRS payments have kept people in employment beyond lockdown but reports suggest that now that it is coming to an end 60% of mid-size businesses are looking to shed staff.

Now is the time for companies who have over claimed to come clean even if it was in error and get their house in order before that letter drops onto the mat or they get an enquiry email – because at that point they will be ‘under investigation.

HMRC are primarily intent on tackling those that have used the system fraudulently from the outset, but Jim Harra (HMRC’s permanent secretary) has made it clear that although they won’t be pursuing erroneous claims at present due to the circumstances, HMRC expects employers to check their own claims and repay any excess amount.

This begs the question whether those that don’t bother to make the checks or those that do make them but forget to make the appropriate repayment of the excess, effectively become fraudulent users of the scheme rather than just claimants who have made a mistake, which would then place them squarely in the firing line for an HMRC investigation.

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