Ensure you don’t fall into the Coronavirus Job Retention Scheme (CJRS) fraud trap

According to recent research, many employers may be committing acts of fraud in relation to the Coronavirus Job Retention Scheme.  If you are an employer who has furloughed staff, ensure that you understand and adhere to the rules or you could risk charges and penalties.

The UK furlough scheme now covers more than 8.4 million employees.  The scheme has been a lifeline to many businesses and employees during the current crisis, with employers being able to access financial support to continue paying part of their employees’ salary.  The scheme has helped to avoid redundancies and changes now made to the scheme will enable employers to bring back employees on a part-time basis from 1 July.

However, recent research carried out by Crossland Solicitors, found that 34% of employees had been asked by their employer to work whilst being furloughed.  Under the rules of the Coronavirus Job Retention Scheme, this is an act of fraud.  To further support this research, the HMRC has also received over 800 reports of potential fraud related to the furlough scheme.  And a number of whistleblowing organisations have heard numerous reports from individuals claiming that they have been asked to work whilst being furloughed.

Currently, under the rules of the furlough scheme, employees must not complete any work for their employer in order for their role to be eligible for the grant, which covers 80% of wages up to a maximum of £2,500 per month.  Although the CJRS rules are changing from 1 July, employers still need to be mindful of what their employers can and can’t do whilst on furlough.

What can a furloughed employee do?

The HMRC Direction, issued on 15 April 2020, says that “training activities directly relevant to an employee’s employment agreed between the employer and the employee must be disregarded for the purposes of para 6.1(a)”.  That is to say, when an employee has been furloughed, they can undertake training that is relevant to their job but they must not carry out any administrative tasks or any activity that will generate income for their employer.

Whilst on furlough, an employee may work for a different employer, as long as their contract permits this and the new employer is unconnected to the existing one.  They can also work as a volunteer for another organisation (but not for their existing employer).

What about Directors?

For the directors of the business, the matter isn’t quite so clear cut.  Directors have a duty to file returns to HMRC and Companies House and even if furloughed, they still have this duty. 

Paragraph 6.6 of The HMRC Direction states that “Work undertaken by a director of a company to fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company must be disregarded for the purposes of paragraph 6.1(a)”.

They must not, however, carry out any work that would generate income for that business whilst they are furloughed.

What are the penalties?

Changes to the Finance Act in late July are expected to include provisions to allow HMRC to claw back any fraudulent claims and/or over payments.  Tax charges and penalties of up to 200% of the amount that has been over claimed are likely.

Up until the changes to the Finance Act are given Royal assent, employers have up to 30 days from making the claim to notify HMRC of any errors and 30 days of the law being passed.

What should you do if you have over claimed CJRS payments?

HMRC has added a facility to the Coronavirus Job Retention Scheme claims process to allow employers to declare any over claims.

Further information can be found on the Government’s website.  If you would like any advice or guidance on calculating your CJRS claim or are concerned you may have made a claim in error, please do not hesitate to contact us.

Published 7 July 2020

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