In March 2020, the UK government launched the Coronavirus job retention scheme. The Scheme provided businesses with a lifeline by HMRC paying 80% of employee’s wages. However, despite the government’s efforts to prevent mass unemployment, it has been targeted for large scale fraud schemes.
So far, there have been reports of significant fraudulent activity related to the furlough Scheme, which has amounted to an estimated cost of £4 billion. As a result of the fraudulent activity, there is currently a mass investigation under the Taxpayer Protection Taskforce.
What exactly is furlough fraud?
Put simply, furlough fraud is essentially where an employer or employee submits fake claims under the Scheme for their own financial gain. Most commonly, counterfeit furlough reports will include:
- An employer misrepresenting the hours an employee has worked to maximise the amount recoverable.
- A business owner making a claim under the Scheme for a non-existent employee.
- An employer placing an employee on furlough and continuing to make them work as normal.
If you have made mistakes when submitting claims under the furlough scheme, you must report them to the HMRC.
In the best case scenario, employers who can provide evidence that they made a genuine error when submitting a furlough claim will only have to repay what they owe. However, if the employer cannot provide evidence that it was an honest mistake, they will face criminal prosecution.
What prevention schemes are used to reduce errors in furlough claims?
To reduce the number of errors submitted through the furlough scheme, the government introduced a notification period. This notification period allows 90 days for people to notify HMRC of any errors regarding claims or changes in their circumstances that impact their eligibility.
What happens if someone does not submit an error within this period?
If individuals receive funds due to submitting errors that are not declared within the 90 day period, they will face legal prosecution. HMRC has the power to impose fines up to the equivalent of double the amount that was overpaid. Furthermore, they will be able to recover the funds through an income tax charge regardless of whether you or your employer made a claim accidentally or fraudulently.
Who might allege furlough fraud?
Recently, the government has invested an estimated £100 million in a specialist taskforce to tackle fraud across all Covid-19 support packages. Furthermore, this covers bounce-back fraud cases which have arisen as a result of furlough fraud.
The government has published information for employees regarding the eligibility and entitlements under the furlough scheme. This information within the topics posted encourages employees to anonymously report any suspicion that their employer was abusing the furlough scheme.
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Who can be prosecuted for furlough fraud?
HMRC can investigate a company if they suspect it has been through the furlough scheme. Furthermore, they can investigate and prosecute the individuals under criminal law. The most common individuals involved in furlough fraud include:
People involved in fraudulent activity within a business, whether through the furlough scheme or another type of fraud, can be prosecuted.
It is always advised to seek legal advice from a lawyer when facing a criminal fraud case. This is because these types of cases are subject to heavy sentencing powers by the court.
What powers does HMRC have during an investigation?
HMRC have several powers available to investigate both individuals and businesses for furlough fraud. For example, HMRC can:
- Interview an individual under caution if they have suspicions that they have been involved in an offence.
- Apply for a warrant to search premises for material that could be substantial in an investigation.
- Apply for a production order that requires a document holder to hand it over within a set time frame.
- Exercise power to seize evidence that potentially could prove the fraudulent offence.
- Impose financial penalties on businesses both for fraudulent and wrongful claims under the Scheme under the Finance Act 2020.
In some cases, an individual can be arrested and detained for an interview. It is essential to seek legal advice from a lawyer when facing an interview. A lawyer can advise you on how to respond, ensuring you don’t incriminate yourself. Furthermore, a lawyer can provide court representation on your behalf in an objective manner without emotion.
What are the penalties for furlough fraud?
If furlough funds have been received unlawfully, the Tax Payer Protection Task Force could pursue prosecution for fraud. This can have significant financial and reputational repercussions for businesses and their owners.
HRMC can impose the following penalties for furlough fraud:
- Impose fines up to the equivalent of double the amount overpaid.
- Publish the details of the organisations involved in the fraudulent activity.
- Criminal sanctions (incarciration/fines)
- Directors can be disqualified from acting for a period of time under the Company Directors Disqualification Act 1986.
- Reimbursement may be sought from individuals in the case where the company has little or no assets.
Those involved in the management of a company (directors, senior management officers and shareholders) can be held jointly and jointly liable if a company cannot repay funds obtained through the fraudulent activity.
What shall I do if I have been overpaid?
If you have been overpaid and are still within the 90 day notification period, you should contact HMRC. However, if this notice has passed or you have become under investigation for fraud, contact a lawyer.
How can a lawyer help?
If you are under investigation or face criminal allegations for furlough fraud, contact a lawyer. A lawyer can act on your behalf to respond to any enquiries raised by HMRC and counteract any allegations of fraud. Furthermore, they can collect evidence and records on your behalf and build a case for your defence.