One widget too many: furlough payment tax assessments

What was the case?

Glo-Ball Group Ltd, sought to argue that their CJRS claim was valid on the basis that the furloughed employee (who was also a director) met the statutory condition of having ceased “all work” during the relevant period. HMRC were successful in their argument that the claimant’s employee had been working by virtue of making a number of social media posts on the company’s account when furloughed, many of which were marketing efforts.

The taxpayer attempted to rely on the fact that when operating under normal business conditions there would be far more social media activity (up to 30 posts a day) than when the employee was on furlough (where only one post every two or three days was the norm).

In the First Tier Tribunal’s words, the purpose of the CJRS treasury direction was to: “require employees to completely cease the work that they had been hitherto undertaking for an employer. So, any continuation of the activities that had been undertaken prior to lockdown is likely to comprise work even though the scale of those activities might have been considerably reduced. An employee who was turning out 100 widgets a day would still be working if they turned out only 3 widgets a day. The Scheme was designed to ensure the compensation was provided only if that employee ceased producing widgets completely.”

What does this mean for other businesses?

As harsh as the judgment may sound, the First Tier Tribunal were left with no legislative wiggle room given the requirement to cease “all work” and as such this judgment was somewhat inevitable. Beyond a few limited exemptions for meeting statutory requirements, such as Companies House filings, any type of work (a single email for example) is likely to fall foul of the First Tier Tribunal’s ‘widget test’ and invalidate a claim.

The question is whether this case will embolden HMRC to take on other similar cases, especially where there is publicly available information such as activity on a website or social media to show an employee was working. The current trend within HMRC is toward moving compliance resources away from the taskforce, which was dedicated to CJRS error and fraud, so any such move would be a reversal of the current direction.

It should be remembered, however, that in many cases of CJRS non-compliance the extended time limits which apply to a failure to notify chargeability to Income Tax apply, meaning HMRC have plenty of time to refocus on this issue if cases such as Glo-Ball continue to be found in their favour.

Would you like to know more?

If you would like to discuss the above, please get in touch with your usual Blick Rothenberg contact or with Matt Crawford using the form below.