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Coronavirus - New powers for HMRC to recover furlough payments - UK

  • United Kingdom
  • Coronavirus - Tax issues
  • Coronavirus - Workforce issues

25-06-2020

A two-week government consultation proposing new legislation which will ensure that payments received by employers under the Coronavirus Job Retention Scheme (CJRS) are treated as taxable receipts and giving HMRC new powers to recover, in certain circumstances, furlough payments from employers and to charge penalties, closed on 12 June.

On the same day, the Government updated its Guidance on the CJRS, adding a requirement that furlough pay overclaimed in error must be paid back to HMRC, alongside a new facility to adjust future claims to offset the error.

The government consultation on furlough payments

The consultation proposed new draft legislation to ensure that CJRS payments received by employers are brought into account in calculating the profits of the business for tax purposes and giving HMRC powers:

  • to recover CJRS payments to which the employer is not entitled. This includes where the employer’s entitlement ceased after receiving it, either because of a change of circumstances or because the payment has not been used as it should - to pay employees or related costs including pension contributions and National Insurance
  • to charge a penalty in cases of CJRS non-compliance

The new legislation will be included in the Finance Act 2020 which will receive Royal Assent later this summer. Once enacted, the new legislation will apply to all payments made at any time under the CJRS.

Under the new legislation recovery of CJRS payments will be made by imposing an income tax charge equal to 100% of the payment to which the employer was not entitled. Employers will have a responsibility to notify HMRC where they have received a CJRS payment to which they are not entitled and pay the ‘tax’ due. Failure to do so will give rise to HMRC imposing penalties on the employer for such deliberate and concealed conduct. 

HMRC will have its usual tools to enforce payment of the ‘tax’ and so will be able to require employers to provide information to verify their claims and may raise assessments.  HMRC will ordinarily have four years to assess whether a recovery of a CJRS payment from an employer is due, but this could be extended to six years where the employer has acted carelessly or 20 years where its action was deliberate.

Given the fast-paced and evolving nature of the CJRS, involving multiple versions of Guidance and Treasury Directions over many weeks, there will be employers that made claims in good faith and only later realised their mistake or discovered inadvertent errors. It appears that such employers are not at risk of a penalty under the draft legislation provided that they notify HMRC and repay sums claimed in error (see below).

The media has reported that over 3000 allegations of fraudulent CJRS claims have been made to HMRC, such as where employees are required to work despite their wages being paid by the CJRS. HMRC has indicated that these, together with other suspicions of deliberate non-compliance, will be its primary focus when investigating overpayments.

Changes to the CJRS Guidance: employer errors when claiming

On 12 June 2020, the Guidance on claiming wages through the CJRS was updated with new content stating:

“If you have made an error in a claim that has resulted in an overclaimed amount, you must pay this back to HMRC. You can now tell us about an overclaimed amount as part of your next claim….If you have made an error in a claim and do not plan to submit further claims, we are working on a process that will allow you to let us know about your error and pay back any amounts that you have overclaimed.”

Comment

Given impending new powers for HMRC and that the terms of the CJRS have become better understood over time, employers claiming CJRS payments should now conduct a review. As a priority, this review should check for any overclaims, arrange for repayment if applicable and ensure that all CJRS supporting records will be stored for up to six years, should HMRC investigate in the months, or years, to come.

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