Furlough Investigations: Exactly What You Need to Know

The coronavirus pandemic has led to failures of various structures of countries. The Health and financial system of several nations suffered a massive blow due to the lockdown amid the pandemic. Although some of the countries are trying to recover from this situation, it seems like a long way ahead. The GDPs of most of the nations have suffered negatively due to companies facing losses as they were not able to operate for months. 

This also amounted to companies lacking resources to pay salaries to their employees; most of the employees were laid off because companies had no other option. Keeping in view this situation, Her Majesty’s Revenue and Customs of the UK Government launched fee schemes to facilitate the furloughed employees of all companies as per the eligibility. 

What are CJRS and SEISS?

HMRC launched two schemes named Coronavirus Job Retention Scheme and Self-Employed Income Support Scheme to provide assistance to the furloughed employees. The scheme started the disbursements with huge costs to the companies, which provided the details of the employees that had been laid off. 

A number of employers and employees took the wrong advantage of the situation and started over claiming the amounts. Initially, nobody knew about the fraud because the scheme was based on ‘process now and check later.’ However, when the fraud cases started coming up, HMRC intervened in the circumstances and began the process of checking the over claimed amounts by the employees. 

Reasons for Furlough Investigations

HMRC decided to conduct Furlough Investigations to assess and analyze how many cases existed. The employees had accidentally claimed more amounts or, in which employers had deliberately taken unfair advantage to seek monetary benefits. There are several primary reasons due to which the conduct of Furlough investigations became necessary:

• The employees had to take advantage of the situation to get more grants from the UK government amidst the pandemic
• The employers claimed more amounts to be paid to employees as they thought there would be no check or analysis of the disbursement of the grants
• Some of the companies accidentally claimed more amounts for payment than required for the laid-off employees due to errors and omissions

Abuse of CJRS by companies

The employers and employees have exploited the CJRS provided by the HMRC. However, the HMRC has warned the companies about such potential frauds. HMRC may initiate criminal prosecution in such cases against the offenders. During the Furlough investigations, it was seen that most of the companies had committed primarily two kinds of frauds:

• Frauds for the benefit of employees

Such fraud was committed to providing unfair monetary benefits to the employees of the company. This type of fraud happens when the employer deliberately considers a person as an employee of his or her company, to get the benefits of the scheme, however, originally may or may not be eligible as the employee. This is done to get the funds from the schemes that the individuals are not entitled to. 

• Frauds for the benefit of employers

When the employers furlough the employees of the company to get monetary benefits from the scheme, it leads to the commission of fraud. These types of frauds shall be investigated by HMRC to find out whether these employees we’re real or fictitious. Such frauds help employers to reduce the payroll costs and enhance their profits. When the HMRC shall find out about these frauds, it shall be withheld over the claimed amount of payments and initiated legal action. 

Protection against the fraud

Various measures can be taken to avoid the investigations by HMRC towards the fraud. Companies who have not participated in frauds can undertake the following steps to be prevented from guard investigations:

• Provide the knowledge for eligibility requirements to the employers for employees who can apply for grants under CJRS.
• Training the HR staff and employers to ensure that the furloughed employees are not engaged in any form of work of the organization.
• Ensuring that the furloughed staff of employees has not revealed any form of revenue apart from the grants listed under the scheme by HMRC. 
• Setting fraud policies and risk assessment strategies in place to deal with any form of inquiry or investigation which can arise in the future.

Penalties for declaration of overpaid claims

HMRC has provided a set of rules containing the penalties to be paid by companies who have committed fraud in CJRS and SEISS; these penalties are:

• It will be taken in the form of tax depending upon the percentage of monetary benefits claimed
• If the claimant has not made any disclosure if overpaid claims through the notification guidelines provided by HMRC, then it may attract a higher percentage of penalty
• If the directors and officers of the company are also involved, and the company is incapable of making the penalties, then the amount can be recovered personally from such directors and officers.