HMRC will be asking questions where they have concerns over the validity of claims. This could be because claims have been miscalculated, or claims were made for ineligible employees.
The CJRS operated on the basis of “pay now, check later”. Under “pay now”, almost £30 billion was paid under the CJRS and related schemes. It is clear that the Government is keen to recoup any amounts that should not have been paid as swiftly as possible; and the “check later” stage has commenced. Numerous reports of alleged abuse of CJRS have been made to HMRC and multiple criminal investigations are underway. The other element of the check later stage is being undertaken by HMRC seeking to ensure that employers carry out the checks. HMRC is in the process of sending “nudge letters” to employers, informing them that they need to contact HMRC and may need to repay monies that have been paid.
HMRC have said that they will be concentrating their compliance activity on those who have been abusing the system. They will be focusing on fraudulent claims and not cases where the employer has made an innocent error. We understand that HMRC will be sharing more details of its compliance approach in the coming weeks.
Authorised agents of employers who receive a letter should also receive a copy. Where the employer does not have an authorised agent, the letter will suggest that they show it to their agent if they have one.
The ‘carrot’ for compliance is a quasi-amnesty in respect of penalties that is in place until 20 October 2020. The ‘stick’ for non-compliance is ‘naming and shaming’ and potential criminal prosecution.
It is very unlikely that the letters have been issued on the basis of a detailed review of individual claims. The legality of nudge letters is debatable, but the letters cannot be ignored. And, considerable care needs to be taken when responding. Inaccurate responses can be used as the basis for a criminal investigation (and possible prosecution).
HMRC can issue assessments now, where it considers that there has been an overpayment, rather than in accordance with the standard timetable for assessments. Assessed amounts are payable within 30 days; late payment may lead to the incurring of late payment interest.
In the meantime, where an employer becomes aware of an error in their claim, to avoid penalties they should contact HMRC to correct the position. The deadline for correcting an over-claim is the later of:
- 90 days after the date the employer received the grant they were not entitled to;
- 90 days after the date the employer received the grant that they are no longer entitled to keep because their circumstances have changed;
- 20 October 2020.
Provided corrections are made in time, penalties can be avoided.
The 20 October 2020 date in particular provides a quasi-amnesty. Not making a declaration by the relevant date can result in HMRC charging penalties of up to 100% of the tax charge for a failure to notify.
As you have received a nudge letter from HMRC, you should review your claim in order to make disclosures before 20 October 2020. The CJRS rules are diverse and very detailed, and it is very simple for employers to have made innocent mistakes. Issues might include simple clerical errors in computations for example, such as miscalculating hourly pay, accidentally matching a calculation to an incorrect name, or making mistakes in respect of furlough rotations or holiday periods. Regardless of how innocently mistakes have been made, HMRC’s “nudge” letters and the legislation, suggest that HMRC’s assumption after the 20 October 2020, will be that employers have acted deliberately in a culpable sense in not rectifying any issues before that date. That assumption may well involve the imposition of penalties, but will also carry with it reputation risks and considerable costs associated with dealing with HMRC enquiries, which may become criminal enquiries. The onus is very much on recipients to come forward now.
The advice in this column is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.