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Audit CJRS claims now to avoid 'furlough fraud'

David Francis David Francis

Employers who may have wrongly made CJRS claims could face investigation and penalties from HMRC for so-called 'furlough fraud'. David Francis considers what you need to do now to protect your business.

As the COVID-19 lockdown began, business leaders were concerned about their ability to ride out the suspension of their cash flow. Many worried that a remote workforce wouldn't be effective and severe supply chain disruption was common.

The Coronavirus Job Retention Scheme (CJRS) was implemented by the government as a lifeline to keep businesses afloat until their revenue streams returned to normal. CJRS claims have benefitted 1.2 million employers, and they allowed 9.6 million employees to be furloughed across the UK.

Yet, in this time of uncertainty, some firms may have taken the helping hand from the government and later found that the impact on their business was not as bad as they had first feared.

CJRS claims could face harsh scrutiny from HMRC

HMRC has already written to over 30,000 businesses across the country to question the need for their CJRS claims.

This is the start of a major investigation into furlough fraud, but those found to have inadvertently taken the furlough option unnecessarily will also face fines and, potentially, criminal investigation.

While many letters from HMRC have already been sent, some might not come for a couple of years yet. Getting your rationale, documents and evidence together while you still have it is vital.

Those organisations that disclose any mistakes on their CJRS claims will be treated much more leniently than those found to have misused the scheme who kept quiet. The deadline to take such an undertaking is fast approaching - 20 October.

20 October deadline for self-reporting on CJRS

We've been contacted by many of our clients in recent weeks, as they're concerned about whether their CJRS claims were carried out correctly. Common concerns include mistakes in the original grant submission or fears that a better than expected financial performance between March and October this year may demonstrate that their business was not, after all, eligible for support.

Some firms feared they would lose all revenue during lockdown, yet some managed to switch to ecommerce, which thrived while consumers were unable to leave their homes.

As such, an at-risk business may have reported an improvement in financial performance after taking the scheme, and it may be more difficult for them to now evidence that coronavirus was the reason for furloughing.

The level of CJRS claims is another issue. Initial guidance came out shortly after the announcement on March 20 but was then updated several times. This means that early calculations may not match up to later revisions.

We're already starting to find unintentional mistakes in our client's CJRS claims, resulting in either over claiming, or under claiming. Some are even paying back the whole amount in a lump sum to avoid worry about fines.

HMRC investigations into furlough fraud could last 20 years

CJRS claims cost the nation £38.8 billion and HMRC says it could remain under investigation for five years; 20 years in cases where fraud is suspected.

The speed with which CJRS was announced and implemented means mistakes and accidents were unavoidable and HMRC recognises that employers could have inadvertently fallen foul of the rules. In an informal discussion between HMRC and 100 large businesses, errors were found in over 60% of the claims made.

Firms that come forward for honest mistakes during this self-reporting period will be much better placed to avoid fines, while those that miss the deadline could face strict fines and being 'named and shamed'.

The self-reporting timeframe is short, but coming forward now is the best way to avoid escalating the problem and risk. Any business that applied for CJRS claims should start to gather evidence that documents the financial context and captures internal discussions around CJRS applications.

With less than a week left to come forward about any issues with your CJRS claims, it's vital that you begin your audit immediately, if you haven't already done so. We also recommend that you make HMRC aware of any reviews in advance of 20 October, to avoid any potential fines.

For support with putting together CJRS claims audits quickly, get in touch with David Francis.

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