Furlough Fraud

Coronavirus Job Retention Scheme – another target for financial fraudsters?

It is no secret that fraudsters have been making the most out of coronavirus. The Job Retention Scheme has provided both employers and employees with much-needed financial assistance, but unfortunately has also provided a possible target for criminals to take advantage of. But now the Government are introducing a new draft bill, as part Financial Bill 2020,  giving HMRC the powers to investigate the grants paid to employers.

The scheme has already made payments of £15 billion, but it is also reported that there have been 1,868 reports relating to furlough fraud so far. Independent whistleblowing organisations have also warned of an increase in calls relating to furlough fraud; something HMRC have noticed is on the rise.

As well as straightforward fraudulent scenarios, it is also fraud for an employer to either claiming on behalf of employees and then not pay those employees, or force employees to continue working whilst claiming under the scheme. There are of course, consequences for the employers if they are found to have misused the scheme.

Employers that think they may have accidentally misused the furlough scheme could be given a 30-day amnesty to admit their mistake under a draft new bill to tackle furlough fraud. Under the proposed legislation, HMRC will be given powers to investigate grants made to employees through the job retention scheme to ensure:

  • they have been used correctly for workers’ wages and;
  • employers have not been overpaid furlough reimbursement.

 

Financial penalties and criminal prosecution

HMRC has made it clear that they will investigate potential fraud. The draft legislation explains that the new HMRC powers will allow them to reclaim any furlough money, overpaid to employers or not spent on wages as intended, via income tax assessments. Financial penalties will also be handed out to any organisation caught deliberately using furlough money for anything other than its intended purpose.

In the more serious cases, employers may be subject to criminal prosecution. HMRC can request audits for application at any time to check whether there has been an abuse of the scheme. This does not mean you will be imprisoned if you make a mistake on your application; minor errors aren’t a massive concern, as long as employer can prove that they made their application in good faith. Employers do also have the 30 day amnesty; penalties will only apply should the person fail to notify HMRC about the situation within the 30-day period

There is no current guidance on how stringently HMRC will seek review and enforcement, but they have confirmed that they are assessing all reports of fraud and preparing to take action.

It is not yet known how defrauding the scheme will be treated by the CPS, however, if it is charged as “cheating the public revenue” then those found guilty could be sentenced to a custodial sentence of up to 17 years.

 

Reputational damage

Say goodbye to your “employers of choice” profile. If you face one of the possible penalties discussed above, you are inevitably going to suffer damage to your reputation. A HMRC spokesman has even stated that fraudulent claims limit the ability to support people and deprive the NHS of essential funding, so it is understandable why you may not be particularly popular if you are caught.

 

What about employees?

Employers must make clear what employees can and cannot do whilst being furloughed. HMRC has stated that employers cannot ask employees to carry out work which generates revenue or provides services for the company or any linked or associated company. When flexibly furloughed, employees still cannot work for their employee during their agreed “unworked hours”.

However, the HMRC guidance does not expand on what “generating revenue” or “providing services” means, therefore employers must continue to be cautious that they do not fall below the required standard. From our perspective, we’ve advised that our clients err on the side of caution.  Activities such as attending meetings, participating in marketing or checking and responding to emails  are clearly  day-to-day activity which keep the business running and could inevitably result in revenue.

Employees can take part in volunteer work, providing it does not generate revenue either for themselves or an associated organisation. They cannot volunteer for their own business.

Furloughed staff can carry out training, but again this must not provide services or generate revenue. For example, training on tills in a shop is not allowed as this generates revenue, but this may be a very good time to ensure your employees are trained on health and safety and mental health.

Employers can keep in touch with employees but with caution.

Where employees are continuing to work whilst furloughed, they should report their employer.

 

Unfortunately, here at Thrive, through our coronavirus helpline (coronavirus@thrivelaw.co.uk) we’ve dealt with quite a few cases of employers trying to force employees to continue working, whilst the employer continues to fraudulently claim under the Scheme.

In our view, where employees have refused to do so and raised their concerns of fraud (either through HMRC or through internal communications), they would likely be protected as a whistle-blower.

By the Thrive Tribe

 

 

 

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