Since the Coronavirus Job Retention Scheme (the furlough scheme) launched in April, it has paid out in excess of £35 billion to UK employers to cover a proportion of salaries of furloughed staff. A total of 9.6 million jobs have been (and a number will continue to be until 31 October 2020) furloughed by 1.2 million employers. However, the Government has since announced that up to £3.5 billion in furlough scheme payments are believed to have been claimed fraudulently or paid out in error.

Situations where an employer may have ‘abused’ the furlough scheme include: if they made a claim for a furloughed employee but insisted that the employee continue to work; if the claim was made without the employee’s knowledge whilst they continued to work; the employer made a claim for a ‘phantom’ employee (e.g. a dismissed or ‘newly recruited’ employee); or inflated a claim by misrepresenting the number of hours an employee has worked in order to maximise the size of the claim.

The Finance Act 2020 gives Her Majesty’s Revenue and Customs (HMRC) powers to claw back any payments made to employers in error or as a result of a fraudulent claim. HMRC have powers to impose penalties and fines as well as to recover the money wrongfully claimed. In the most serious cases, HMRC may bring a prosecution for a range of criminal offences arising out of ‘furlough fraud’. In July 2020, a 57 year-old man from Solihull was arrested in relation to suspected ‘furlough fraud’ involving a claim for £495,000. More recently, HMRC confirmed two people have been arrested on suspicion of furlough fraud of up to £700,000 and a 51-year-old female company director from Walthamstow was arrested on suspicion of fraud by false representation and money laundering.

HMRC stated in a press release that it ‘will not hesitate to act on reports of abuse of the scheme. This is taxpayers’ money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding. As usual, we have built steps in to prevent mistakes and fraud happening in the first place, but anyone who is concerned that their employer might be abusing the scheme should report it to HMRC online…’

HMRC provides an online form on their website for reporting furlough scheme abuse. As at 7 August 2020, HMRC received almost 8,000 reports of potential ‘furlough fraud’.

Richard Las, acting director of the Fraud Investigation Service at HMRC, said: ‘The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. The vast majority of employers will have used it responsibly, but we will not hesitate to act on reports of abuse of the scheme’.

Furlough amnesty 

However, criminal investigations are not necessarily the most cost-effective way for HMRC to recoup money lost to furlough fraud. The Finance Act 2020 contains an amnesty period of 90 days during which time an employer can notify HMRC of any mistaken or wrongful payments claimed under the Furlough Scheme. Self-reporting of misuse of the Scheme, mistakenly or wrongful, may be a way in which employers can avoid hefty penalties and fines.

We haven’t heard the last of the furlough scheme. Rishi Sunak, Chancellor, is under increasing pressure to extend the furlough scheme. MPs are calling for the furlough scheme to be extended for at least 18 to 24 year-olds and for those undertaking re-training.

If employers suspect that they have made a mistaken or wrongful claim under the government scheme, they should undertake a thorough fact-finding exercise and take professional advice before self-reporting to HMRC.

How can we help?

If you have questions about the Coronavirus Job Retention Scheme or any other employment matter, please get in touch with a member of our Employment team who will be happy to discuss your circumstances.