The term ‘furlough’ was relatively unknown a little over a year ago. However, much like ‘Covid-19’, ‘lockdown’ ‘social distancing’ and ‘bubbles’, it has slipped into everyday language since the pandemic began.
The Coronavirus Job Retention Scheme (CJRS) was introduced by the UK government in March 2020, and allowed businesses to claim a government grant to cover 80% of the wages of employees who were not working. As with any application for government funding there are rules that must be followed. The claim carries with it an obligation to notify HMRC if circumstances change. If there is evidence of deliberate wrongdoing then criminal offences such as furlough fraud may be considered.
As of February 2021, the overall cost of the scheme was £53.8 billion. However, HMRC estimate that £3.5 billion of this figure was paid out to businesses on an incorrect or fraudulent basis.
What is furlough fraud?
Furlough fraud is not an offence in its own right. Fraud can be committed in a number of ways under the Fraud Act 2006. Offences such as fraud by false representation could be used to prosecute cases where employers have deliberately claimed salaries for:
- Employees that have continued to work;
- Employees that don’t exist;
- Employees who were contracted for less hours than claimed.
Fraud by failing to disclose information could encompass situations where a legitimate claim was made but a change of circumstances impacting eligibility was knowingly not declared to HMRC.
Other offences that may be relevant are conspiracy to defraud where two or more people conspire to commit fraud, or cheating the public revenue where a false statement is made with the intention of cheating the public revenue.
What happens if an employer is overpaid or circumstances change?
Notification periods were introduced that allow people 90 days to notify the HMRC of errors, over-claims or a change in circumstances following the receipt of the grant or a change in circumstance that impacted eligibility.
If overpayments are not declared within this period the HMRC has the power to impose a penalty up to the equivalent of double the amount that was overpaid and to recover it through an income tax charge. This is regardless of whether or not the employer made the claim accidentally or fraudulently.
Who might allege furlough fraud?
When HMRC published information for employees about eligibility and entitlements under the furlough scheme, within the topics covered on the UK government website, employees were encouraged to anonymously report any suspicion that their employer was abusing the furlough scheme. They could do this following a link to an online form, or report their concerns via an 0800 telephone number.
The government has recently invested £100 million into a specialist taskforce recruited to tackle fraud across all Covid-19 support packages, including furlough fraud and bounce-back fraud.
Who can be prosecuted for furlough fraud?
If HMRC suspect that a company has been overpaid CJRS grants, but the company is subject to, or very likely to be subject to, an insolvency procedure, company directors or anyone who was directly or indirectly involved in the management of the company at the time of the claim can be jointly and severally liable to repay the amount due to the HMRC.
It follows that company directors, managers any anyone involved in the alleged offence is also at risk of criminal allegations of furlough fraud.
This obviously has serious consequences for company directors who may be exposed to disqualification from being a director following a conviction for fraud.
What powers do HMRC have during an investigation?
There are several powers available to HMRC to help them to investigate a case. For example, HMRC can:
- Apply for a warrant to search a premises for material reasonably believed to be of substantial value to the investigation;
- Apply for a production order which can compel the holder of a document to hand over that document to them within a set time frame;
- Exercise the power to search a person, including for evidence;
- Exercise the power to seize potentially relevant evidence of the offence;
- Interview a person under caution if they suspect them to have been involved in the commission of an offence.
In some circumstances a person can be arrested and detained for an interview for this purpose or HMRC can invite a person to attend an interview at a set time and place.
A person has a right to legal advice if they are arrested or interviewed. They can appoint their own lawyer and should do so at the earliest opportunity if they think they may be under investigation or asked for an interview. The lawyer will speak to the investigator to find out more information about the investigation and can then advise about how to approach the interview as well as attending the interview with them so that they can be present to advise.
What are the penalties for furlough fraud?
Fraud offences can attract a range of sentences and orders if a person is found guilty, including fines, imprisonment, compensation and confiscation orders, directors disqualification and Serious Crime Prevention Orders (SCPO).
What should I do if I think I have been overpaid?
If you are still within the notification period then you should take steps to arrange for the overpayment to be re-paid to the HMRC. If you are concerned that you are being investigated or that you may be exposed to criminal allegations of furlough fraud then please contact our furlough fraud experts to discuss how we can best reduce any potential criminal and financial liability.