Having recently issued guidance relating to the recovery of overclaimed CJRS grants, and the related penalties that could potentially be levied, HMRC have set up specific teams to review CJRS claims and has now started writing to numerous employers advising them that they believe that that may need to repay amounts received under the CJRS arrangement.
The HMRC ‘nudge’ letters advise the employer that CJRS payments may need to be repaid because the business has claimed for a grant that is greater than they are entitled to or, alternatively, that they may not have met the conditions of the scheme.
The letter recommends that the Employer reviews their records and the claims they have made, to check whether they were correct and that, once they have carried out that review, they should then contact HMRC, whether or not they believe that they have over-claimed.
HMRC have stated that they understand that mistakes happen, and that they are not seeking to penalise innocent errors. Therefore, HMRC state that that they have made it as easy as possible for their ‘customers’ to pay back any money received that they were not entitled to. Initially, if an employer makes an error in a claim that has resulted in them receiving an overpayment, they should advise HMRC about a previously overclaimed amount in their next online claim.
However, if any incorrectly claimed payments are not repaid, or notified to HMRC within the relevant time period, detailed below, HMRC now have the power to recover all of the overclaimed amount plus HMRC can also apply an additional penalty of up to 100% of the amount of the CJRS that the employer was not entitled to, and had not repaid to HMRC by the last day of the notification period.
Notification period of overpaid amount of grant
If you identify that you have overclaimed a CJRS grant and have not repaid it, you should notify HMRC within the notification period. The notification period ends on the latest of whichever date applies below:
- 90 days after you receive the CJRS grant you’re not entitled to, or;
- 90 days after the day circumstances changed so that you were no longer entitled to keep the CJRS grant, or;
- the 20 October 2020.
Action to take to minimise the risk of potential penalties
Whether or not an employer has received one of the HMRC letters, it is essential that employers who have claimed using the CJRS arrangement undertake reasonable due diligence to ensure that the claims they have submitted to HMRC are accurate. If any errors are identified, HMRC should be advised as soon as possible and repayment arranged.
In addition, the employer should ensure that they, and their staff, have complied with the rules of the scheme. In addition to the new teams set up to review and investigate furlough claims, going forward, all HMRC Employer Compliance Inspections undertaken will include a review of all claims made under CJRS. Therefore, any employer who carries out a review, and finds themselves in breach of the rules, for whatever reason, should notify HMRC and take advantage of the time limited notification period to arrange to repay claims they were not entitled to.
As the calculations needed for submitting accurate furlough claims are extremely complex, it is likely that the majority of incorrect claims submitted to HMRC will be the result of employers misunderstanding the correct processes needed to calculate the claims made. However, other incorrect claims that may have arisen from breaching furlough rules are more likely to be identified later, either as the result of HMRC Employer Compliance Inspections, or by employees contacting HMRC directly to report their employer for perceived breaches of the rules. This could include issues such as:
- Employers not being aware that remote staff are working whilst they are considered to be furloughed;
- Furloughed employees, who have been told not to work, continuing to respond to work, or client emails;
- Some line managers may have ignored the prohibition on not using furloughed workers if client deadlines need to be met;
- The employer is not entitled to retain the payment, because an employee has left, or where the employer has not used the amount to pay the intended costs within a reasonable period.
Any of the above situations could lead to HMRC seeking to recover claims made, together with statutory interest and a significant penalty.
All aspects of claims relating to the CJRS arrangement are extremely complex and open to errors and misinterpretation. It is clear that HMRC are already reviewing claims made by employers and investigating the claims made to their CJRS fraud hotline.
It is vital that all employers who have submitted claims under the CJRS arrangement are comfortable that the claims submitted are accurate and that their internal processes used to support those claims are robust.
The Smith Cooper Employment Tax team has already assisted numerous clients by reviewing their CJRS processes, identifying errors made and advising them on notifying and submitting corrected claims to HMRC to minimise future compliance risks.