ALL YOU NEED TO KNOW ABOUT FURLOUGH FRAUD and INVESTIGATION

The Coronavirus Job Retention Scheme (CJRS), also regarded as the furlough scheme, is an arrangement provided by the UK Government to help companies retain staff after the COVID-19 disease outbreak. The policy pays a proportion of the salary of workers (currently 80 percent) who are furloughed by their manager due to the Covid-19 pandemic, intending to prevent the need to make the workers redundant at this point. One of the conditions of the policy is that furloughed workers are not permitted to work with their employers at this time. They will work elsewhere if their contract of employment permits.

The government’s furlough policies for companies and self-employed citizens provided critical assistance during the UK’s COVID-19 lockdown, helping nearly 7.5 million working people. However, the HMRC recently announced that it had received almost 800 complaints of alleged evasion in regards to the two schemes and that it will take steps to ensure enforcement with the applicable laws, regulations, and legislation controlling the United Kingdom’s tax policies.

A company or self-employed individual would be known to have committed a criminal fraud crime if it were discovered that they earned reimbursement through either the Coronavirus Job Retention Scheme or the Self-Employment Income support Scheme by making fraudulent statements to the HMRC.

This furlough fraud as it is now called can indicate that the corporation not only has to refund every portion of the funding that it earned, which was not used for the purpose of providing 80 percent of its workers’ monthly salaries but can also be fined and will have to go through a proper furlough investigation.

When the CJRS came into service, many businesses naturally hurried to get any or all of their workers into the system as soon as possible. For certain firms, this may have indicated that there were real errors in the statements. Maybe inaccurate descriptions have been given, or admin mistakes have been made that have not yet been found or corrected. HMRC suggested that companies had 30 days to warn them of any errors of this sort.

The key forms in which a company will commit furlough fraud and will have to go through a furlough investigation include:

• If the organization furloughs employees but requires them to keep working through this time.
• When the organization does not tell the workers that they have been furloughed, the worker can only find out until they collect their pay.
• If the organization demands a grant for workers who do not currently work for them during the time needed.
• If the salary data for workers have been wrongly entered, the corporation says more money than it currently charged for the salaries of the respective team member.

WHAT ARE THE PENALTIES FOR FURLOUGH FRAUD?

If a company or self-employed individual is accused of making a false claim under the Coronavirus Work Retention Scheme or the Self-Employment Income Support Scheme, future fines with furlough investigation include:

• A lengthy sentence of prison
• An unlimited penalty Fine
• Suspension of Manager
• The obligation to refund all fees to which the complainant was not qualified for

In particular, the HMRC recently released recommendations for reforms to the Finance Bill 2020 which if approved by Parliament, would grant the ability to keep directors directly accountable for tax charges if they have knowingly broken the rules of the Coronavirus Job Retention Scheme are going through a furlough investigation.

WHO CAN BE ASKED TO GO THOROUGH A FURLOUGH INVESTIGATION?

Where there is evidence of furlough theft, managers of a corporation, representatives of a partnership, or self-employed individuals may all theoretically be charged and asked to go through a furlough investigation.

However, HMRC has clarified that it can only pursue a furlough investigation for “the most serious situations where the sums are knowingly over-charged with the awareness of the agent and where the business is bankrupt or at serious risk of losing money and there is a considerable likelihood that it will not fulfill the tax obligation.”

In situations where a real error has been made, corporations will be allowed to reimburse the amount falsely claimed.

WHAT WILL OCCUR IF HMRC THINKS AN ORGANIZATION WRONGFULLY CLAIMED MONEY UNDER THE POLICY?

If HMRC suspects that you or your company have received funding that you were not eligible for in any furlough scheme, they are expected to examine if there are reasons for action. There are two forms of furlough investigations that the HMRC can carry out:

• An aspect inquiry – look at a particular portion of the records (in this case, those related to the funding received under the furlough scheme)
• Complete survey and furlough investigation–look through all of the financial reports, including corporate statements and personal bank documents of directors/partners/business members.

If you are convicted of furlough theft, or if HMRC opens an inquiry or furlough investigation into the use of the policy by your company, it could be a very alarming situation to find yourself in. You must obtain professional legal counsel so that the problem can be addressed in the best manner possible for your case.

In the process of the HMRC furlough investigation, you are obliged by law to supply all the details provided by the investigative agents. If you find yourself in this situation, it is reasonable to have the assistance of specialized fraud defense attorneys with expertise in the handling of HMRC furlough investigations. This will simply guarantee that you adhere to your legal responsibilities while defending yourself and your company, as well as minimize the risk of HMRC going to a full furlough investigation.

If you feel that there are no reasons for HMRC to prosecute your company, you can dispute the judgment to investigate if you can prove that the logic underlying HMRC’s decision to prosecute has been mistaken. If you want to go down this path, you would need solid facts to prove your argument, so, again, a specialized defense representative is important.

Any blunders you create at the initial point of the case can be very difficult to learn from so please don’t be afraid in seeking expert counsel if you find yourself undergoing a furlough investigation.