Chancellor To Grant “Draconian” Powers To Reclaim Millions In COVID-19 Support Payments

As the gears start to turn for the UK economy, the government has turned its attention to how it can reclaim some of the money spent during the pandemic – specifically, the COVID-19 support payments. One…

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Last Updated: 2nd March 2022

As the gears start to turn for the UK economy, the government has turned its attention to how it can reclaim some of the money spent during the pandemic – specifically, the COVID-19 support payments.

One of the methods proposed is to enable HMRC to reclaim funds through investigating, and penalising, furlough fraud. These powers have been dubbed as “draconian” by critics, and will allow HMRC unprecedented freedoms to punish those who have made incorrect or fraudulent claims.

These powers have already been immortalised in legislation and added to the Finance Bill. Mike Parkes from GoSimpleTax explains more…

What were the furlough rules?

During the COVID-19 pandemic, the self-employed (Self Employed Income Support Scheme SEISS) and employers (Coronavirus Job Retention Scheme – CJRS) were able to claim for support from the government to help support their business or employees.

In the case of the latter, the employer’s eligibility depended on a number of factors, but most importantly that the employees could not perform their role according to lockdown rules and the business would be adversely affected by the coronavirus.

Of course for many businesses this has indeed been the case and those businesses need not worry. However, there have been many reports of businesses placing staff on furlough but in direct breach of the rules forcing employees to undertake some or all of their normal duties.

For the self-employed to qualify, they needed to (among other criteria) earn the majority of their income through self-employment and have average annual trading profits of less than £50,000 over the last three years and the business must be adversely affected by coronavirus

But due to the immediate need for the COVID-19 support payments, the government couldn’t have expected, or prevented, fraud. Yet as a large number of suspicious unemployment insurance claims came in, it was felt that HMRC should retroactively tackle incorrect and fraudulent claims. The first arrest have already been made for a suspected £500,000 fraud.

What will the new Finance Bill do?

In mid-July, any business that has received money due to COVID-19 from the Coronavirus Job Retention Scheme or Self-Employment Income Support Scheme will have 30 days to self-declare an inaccurate application and pay back some or all of the payments received under the schemes.

Although it has been suggested there will be a period of amnesty initially to encourage self reporting for those that have made genuine mistakes or indeed found they did not need any support. Some businesses have not been adversely impacted so did not need the support, or they have been financially strong enough to not have needed any government support so have decided to repay the government support received.

Of course, this isn’t a chance to clear your conscience, but an obligation to repay now and save yourself significant trouble in the future.

And just repaying some of the money might not keep the taxman from your door either. Once HMRC has filed accounts for the past and current year, if they decide there’s still money to be paid due to an error or fraud, they’ll be in touch.

What happens when HMRC suspects fraud?

If you fail to correct any mistakes and notify HMRC that you wrongly claimed for the Coronavirus Job Retention Scheme, or the Self Employed Income Support Scheme you could find yourself under a tax investigation. You will be accused of breaching the rules of the scheme and will have to prove that your employees were on furlough throughout the duration you claimed for.

Moreover, you will have to prove that they would have been working if the pandemic hadn’t happened. This will need to be kept in a series of detailed records that clarify why you felt you were entitled to access payments.

Similarly, suspect claims for the Self-Employment Income Support Scheme will also be investigated by HMRC. Should you struggle to prove that you have not received any income that constitutes ‘wages’, you will be penalised.

If HMRC believe any support should be repaid, the new powers provide for a 100% tax rate to be applied to the business to recoup the payments.

Am I at risk?

Provided your claim was honest and you’re confident there aren’t any errors concerning your finances, you won’t be accused of furlough fraud. However, if you’re concerned there may be some inaccuracies, you can self-declare them using HMRC’s fraud information report form.

The form can be completed electronically. Once you’ve submitted it, HMRC will take the time to check that the missing funds are then repaid.

Be aware that the form may be used by whistle blowers making a claim either against you as an employer or as an affiliate. So, if you’re even the slightest bit concerned that your furlough may not be entirely accurate, it’s worth reassessing your claim.

How can I stay compliant with the new Finance Bill?

If you’re an employer, check to ensure you have not been encouraging your employees to continue working while at the same time receiving furlough support for their wages through the Coronavirus Job Retention Scheme and that they have not worked If they have, you will need to self-declare via HMRC’s fraud information report form. Also keep evidence that your business has been impacted by coronavirus and that without support from the CJRS the employees would have lost their jobs.

If you’re self-employed, ensure that your business has been impacted by coronavirus whilst claiming support through the Self-Employment Income Support Scheme.

As ever, it pays to be prepared when it comes to fulfilling your obligations with HMRC. Only by having a clear picture of the tax you owe, and any payments you need to make, can you avoid significant penalties.

About GoSimpleTax

With new support schemes and payment deferrals having been introduced, it’s never been more important to ensure you’ve remained compliant. And with their award-winning tax software, GoSimpleTax can ensure you stay on the taxman’s good side. By simplifying the Self Assessment tax return process, you can ensure you accurately declare your income. Interested? Get in touch with a member of their team today.

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Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.

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