As previously highlighted by HMRC, if a business made an error in a CJRS claim that resulted in their receiving too much money via the scheme, they will be required to pay the amount overclaimed back to HMRC. However, previously, HMRC have not provided any guidance on how an overclaim could be managed and paid back.
On Friday 5th June 2020 HMRC issued an update confirming that, going forward, the CJRS application system has been updated to enable businesses to advise HMRC if they have identified previous errors and over-claimed.
In future, when a business makes a furlough grant claim under the CJRS, they will be asked if they need to reduce the amount to take account of a previous error. The new claim amount will then be reduced to reflect this. The employer needs to keep a full record of this adjustment for six years. We recommend that the record should include details of how the original claim was calculated, how the errors arose, details of the correct amounts that should have been applied for and, confirmation of how the overclaim was offset against later claims.
HMRC has also confirmed that they are still working on a process that will allow businesses to advise them about any previous errors and pay back any amounts that they have over-claimed if an error in a CJRS claim has been made, and the business does not plan to submit further furlough grant claims. HMRC have advised that they will update their guidance when that process is available.
If you have previously identified an error, and already made an appropriate amendment to a subsequent claim, so that the overall amount claimed under the scheme now correctly balances, we recommend that you take no further action. To ensure that you are able to support the overall level of payments received under the scheme, you should keep details of how the original claim was calculated, how the errors arose, details of the correct amounts that should have been applied for and, confirmation of how the previous overclaim was offset against later claims.
HMRC stated from the outset that they will be carrying retrospective compliance checks on furlough claims made, and require employers to keep all CJRS furlough records for 6 years. Errors found by HMRC will be deemed as compliance error and, as such, in addition to seeking repayment of the overclaim, interest and penalties will also be charged. Legislation is in the process of being approved to expand HMRC’s powers of inspection to include furlough payments. To avoid future complex compliance risks, we recommend that you consider having an independent review of claims made, to receive confirmation that the methodologies being applied are correct. The calculations for furlough grants are not always as straight forward as the headlines suggest, particularly in relation to start/end periods, variable pay, top ups and salary sacrifice. We are aware that many employers are making inadvertent errors in relation to their furlough grant claims. Having a process of independent review, so that if appropriate the business can self-correct and make a carefully managed voluntary disclosure of inadvertent errors, or make the appropriate amendment now, using the updated claim process, will minimise future compliance risks, interest and penalties.
If you have any questions in respect of this issue, or if you have any concerns about the accuracy of previous furlough grant claims made under the scheme, and would like an independent review of your calculations, please speak to Laura Parr and Mick Verney in our Employment Tax team.