The period of time in which employers can correct any errors and amend claims under the Coronavirus Job Retention Scheme without incurring penalties has been extended to:
- 90 days after the day on which the Finance Act 2020 was passed (22 July 2020); or
- 90 days after the day on which the income tax on the payment made becomes chargeable,
whichever is the later. The previous period was 30 days.
We are seeing increasing concern amongst employers, given the complexity of the rules around the Scheme (particularly in relation to flexible furlough), that they may have unwittingly over-claimed under the Scheme – which could result in a clawback of funds from HMRC.
We are supporting a number of employers in conducting “Furlough Audits” to provide comfort that they have calculated their claims correctly and to give them the opportunity to amend any errors without penalty during the legal time limit. Learn more about our Furlough Audits here.
The Scheme at a glance
The Scheme has allowed businesses to furlough employees and apply for a grant of 80% of each employee’s usual wages, up to a cap of £2,500 per month. Up to the end of July the Scheme has also covered the costs of employer NI and pension contributions. Although the amounts that can be claimed in respect of a furloughed employee will gradually reduce between August and October and then the Scheme will end, it is very likely that in line with most Government initiatives, the full cost will greatly exceed what may have been estimated when it was first implemented.
Understandably in the circumstances, the Government has essentially adopted a “pay now and check later” approach. However, due to the large sums of money being made available, HMRC has been very concerned about the Scheme attracting fraud and abuse quite above and beyond genuine but inadvertently inflated claims from employers.
When the Scheme was originally introduced, the Guidance was unclear and at times completely contradictory. Further, the detailed rules for calculating claims when employees are flexibly furloughed (i.e. work part time) are, putting it kindly, difficult to understand (more on that here). This has left employers in an awkward position as few will be able to say with any confidence that they have not unknowingly over-claimed.
Consequences of Overclaiming
HMRC has given strong indications that it will be auditing employers’ use of the Scheme. It is entitled to charge any figures overclaimed as tax due to it, and also to charge penalties of up to the same amount again. There is the potential for HMRC or the press to “name and shame” those found to have overclaimed, leading to negative PR and reputational damage. Directors of now insolvent businesses can be held personally liable for the amount overclaimed. Allegations that HMRC will start by auditing those employers which have made subsequent applications for further support under the Scheme on the basis that initially they underclaimed are yet to be proven. The probability is big employers and household names first, since they potentially represent the biggest prize financially and the most bang-for-buck in terms of public deterrence to others.
The Finance Act 2020 has now introduced a limited 90 day period in which employers can correct any errors and amend their claims without penalty. HMRC may use this to head off employer defences based on lack of clarity or inconsistencies in the guidance current at the time the first claims were being made (i.e. a brief amnesty period for employers to check that they got their claims right based on the latest guidance). Once this period has passed, it may be difficult to run that defence, though that is not to discourage it if that is genuinely the position. It will therefore be important for employers to be proactive and review any potential miscalculations prior to any audit process. They will have to be satisfied that the legal conditions for claims have been satisfied by all relevant types of employees, such as those with variable pay, new starters and those who have been furloughed for only part of the claim period. It will be important for businesses to be able to evidence and explain their calculations if reviewed by HMRC. Even if those calculations turn out to be wrong in matters of detail, showing that they were done to the best of the employer’s ability at the time may well be relevant to the sanction imposed. HMRC requires businesses making claims under the Scheme to keep a copy of all relevant records for six years.
We recommend that employers take advantage of this extension in time and use it to revisit their calculations and correct any errors in their claims, as even innocent miscalculations could well end up being very costly.