John Bett

Mistakes happen in life and business. The important thing is that we act upon them and try to make the error good as soon as we realise.

That holds true when it comes to any errors which may have been made by firms when making claims as part of the UK government’s Coronavirus Job Retention Scheme.

Much has been said about the government “getting tough” on so-called furlough fraud and the £100m HMRC team of 1,000 investigators tasked with unearthing potentially dubious claims.

With billions of pounds ploughed into the programme in an attempt to save jobs across the country – and with the scheme continuing until October – it’s understandable that Chancellor Rishi Sunak wants guarantees that the money is being spent properly. A reported 26,000 cases of furlough fraud were being looked into in March, according to reports.

And while headlines have focused on the efforts being made to bring furlough fraudsters to justice, anyone who suspects they have made an innocent mistake in their applications or calculations should not be put off from coming forward. Steps for repayment are in place.

Errors happen in the best of times, so are even more understandable in the myriad of actions and decisions that managers and business owners have had to make over the course of almost 14 months now.

That’s when it comes down to how we act. No good will come from anyone who buries their head in the sand for fear that they will be investigated on suspicion of fraud, particularly when they have not deliberately misled the authorities.

Whether erroneous claims were made as a result of a misunderstanding of the rules or deliberately, employers have a narrow window to rectify these, or risk facing serious consequences.

Ultimately, responsibility for compliance with the furlough scheme lies with employers. It’s possible they may have overclaimed if they received assistance through furlough for employees who were still carrying out work for them, if they received more money than entitled to, or if circumstances changed after making the claim which altered the sum that the employer was entitled to.

Employers who believe that they have been overpaid can avoid penalties by notifying HMRC within the latest of either 90 days after the date of receiving the grant or 90 days after a change in circumstances.

If an employer is found to have been overpaid and has not declared it within the 90-day window, HMRC may issue an income tax charge. At the very least this will be the amount of the furlough scheme payment that the employer was not entitled to, including any amounts that weren’t used on furloughed employee payments, NICs or pension contributions within a reasonable period.

The charge will also depend on whether HMRC, which has a considerable staff presence in Scotland, of course, believes the employer intentionally claimed the overpayment. If they determine it was “deliberate and concealed” a penalty of up to 100% will be added to the amount to be repaid. Details may also be published along with other deliberate tax defaulters.

Employers will be given 30 days to pay the charge and interest will accrue on late payments. If the company has become insolvent and the tax cannot be recovered, company officers who knew about the overclaimed grant may be liable to pay it back instead.

If an employer is found to be acting fraudulently, it is also possible that there will be criminal investigation and prosecution. Offences include common law fraud, false accounting, conspiracy to defraud and money laundering. A corporate entity may be investigated for the strict liability offence of failing to prevent the facilitation of tax evasion.

Businesses generally would do well, in my view, to take time to audit the flow of funds associated with furlough payments and take advice where necessary.

Turning a blind eye to claims that should not be what they were - or are - in the hope that HMRC will not find out could lead to serious penalties, criminal conviction, imprisonment and a damaged reputation. This is also a particularly risky strategy given the resources HMRC is pledging to uncover such offences. Honesty is always the best policy.

John Bett is a partner at Lindsays. This article first appeared in The Scotsman.