Most would agree the package of support that the government has provided through the Coronavirus pandemic is unprecedented. But it will not tolerate fraudulent claims: the police have already made an arrest for furlough fraud.
Legislation added to Finance Act 2020 uses the tax system to claw back fraudulent or incorrectly claimed income support payments – i.e. payments claimed under the Coronavirus Job Retention Scheme (CJRS) and the Self-employed Income Support Scheme (SEISS). This includes situations where an employer did not pay the government furlough payments to employees in full so loses entitlement to it. The legislation claws back payments that the recipient was not entitled to by converting each £ of excess or wrongly claimed payment into a £ of income tax liability – i.e. 100% clawback. By deeming it to be a tax liability, the government can then use HMRC’s established legal and practical machinery to clawback the funds.
Where a business or individual is aware they received or retained any government support payment in error, this must be notified to HMRC by the later of 90 days from Royal Assent (i.e. 20 October 2020), 90 days from receipt of the payment or 90 days from loss of entitlement to the payment. As the clawback amounts are treated as tax, they are due on the usual tax payment dates for individuals and companies (although, for large companies, tax on payments to which the companies were not entitled will not affect quarterly instalment payments). However, HMRC has the right to raise an assessment to claw back such excess payments at any time. If it does, payment is then due 30 days after assessment (unless there’s an appeal with postponement or a time to pay agreement). If the excessive payments are repaid or assessed then they don’t need to be put on the recipient’s personal or business tax return.
Our experience suggests that many businesses implemented claims in a rush at the start of lockdown: they should now check and double-check that the amounts they claimed were right. Making sure the paperwork is accurate and government guidelines are adhered to is key.
Already repaid funds from an error?
HMRC has already created a facility to allow businesses to pay back over-claimed amounts for the CJRS (and SEISS): if you use this to fully correct any errors, there is no need to make a disclosure to HMRC.
However, even if you have already repaid over-claimed amounts, it is sensible to get your position checked in detail. If there is £1 still owing to HMRC, technically you need to notify it of the error and could face a “failure to notify” tax penalty if you don’t do so within the 90 day limit. Where a deliberate behaviour penalty is charged for a failure to notify, then companies and individuals may be treated as ‘deliberate defaulters’ and publicly named on HMRC’s website.
We expect that HMRC will be checking claims made, and taxpayers are required to keep evidence supporting their claims. For those where HMRC suspects fraud, we can expect serious more in-depth investigations into not just furlough/SEISS claims but also the wider business and personal affairs of the individuals involved. The new legislation includes powers to pursue company office holders where businesses become insolvent, with joint and several liability.
If you are not in a position to repay over-claimed amounts within the 90 day deadline, please contact us for advice on making the right disclosures to HMRC.