During the COVID-19 pandemic, it has been recorded by Her Majesty’s Revenue and Customs (HMRC) that £3.5 billion was fraudulently claimed or paid by mistake by employers through the Coronavirus Job Retention Scheme. Currently, £35.4 billion has been given through the Coronavirus Job Retention Scheme (CJRS) to support 1.2 million employers and 9.6 million furloughed jobs. The HMRC current aim is to retrieve the excess funds that were given to employers. Other schemes have also been used and thus, may be affected by fraud such as Bounce Back Loans and the Coronavirus Business Interruption Loans. Employers, who have been fraudulently claiming money, have been arrested. Arrests have been made to highlight the seriousness of fraud that is reinforced by Richard Morley, a partner in tax dispute resolution at BDO. HMRC by making their first arrest have demonstrated to the public how serious the crime is misusing the COVID-19 schemes are.
How is Furlough Fraud committed?
It is when the employer furloughs their employees but asks them to continue working.
When the employer does not notify their employees, they have been furloughed and they only realise after they have been working.
The employers accept furlough payment for employees who are not currently working for them.
The employers have given in the incorrect salary details allowing them to claim more.
Statistics on the Furlough Fraud
There have been 8000 calls made to the HMRC’s fraud telephone hotline. Currently, 27,000 cases that are considered to be high-risk are being investigated due to the belief there has been a huge mistake in how much an employer has claimed. Jim Harra, HMRC’s permanent secretary stated that the error and fraud rate from the Coronavirus Job Retention Scheme may have been from 5% and 10%. It was implied that this estimate derived from intentional fraud and error. In July, the centre-right think tank Policy Exchange stated that this level of fraud and error may ‘cost the government between £1.3 billion and £7.9 billion.’ This prediction was calculated from the ‘expected fraud rates for government expenditure from the Cabinet Office and the Department for Work and Pensions.’ There is an assumption that the fraud cost will be towards the higher numbers of the estimate. Furthermore, another issue is that a fifth of furloughed employees reported they have been asked to work by their employer whilst being furloughed but many more people reported working without being told that they had to work.
First Arrest of Furlough Fraud
The first arrest of furlough fraud happened on July the 8th 2020 in the West Midlands; a 57-year-old man is under the suspicion of fraudulently taking £495,000 from the Coronavirus Job Retention Scheme. The first steps that HMRC took were freezing his bank account associated with his business and taking away all his computers and digital devices. The first arrest led to further eight men also from the West Midlands all being linked with the investigation taking place. This involved 100 officers from HMRC being sent to 11 locations. All digital devices and business records were taken away for investigation.
Following Arrests of Furlough Fraud
On September 10th 2020 two further arrests were made in London, a 43- year- old accountant and a 51-year-old company director. The accountant from Romford was arrested on suspicion of fraud by false representation and fraud by abuse of position and money laundering. The company director from Walthamstow was arrested on suspicion of fraud by false representation and money laundering. However, both these people have been released under investigation. All their digital devices and business records were seized.
These furlough fraud cases demonstrate that employers have taken advantage of the furlough schemes, which are supposed to be used to help employees during the difficult time of the COVID-19 pandemic. These arrests are only the start.
Actions which can be taken to prevent arrest
To prevent further arrests HMRC has decided to allow employers the opportunity to return any excess money they have taken. There is also a self-reporting portal that can be used to report evidence to prosecute the fraudsters. These will increase the speed in which HMRC can focus on finding people who took advantage of the furlough scheme. As these will be classified as criminal investigations, HMRC can carry out searches under a warrant of homes and business premises.
However, a majority of CJRS will be dealt with through civil enquiries. Hence HMRC move to publish ‘draft measures in the UK Finance Bill’ this enforces that the funds from the CJRS or COVID-19 scheme can be taken back by ‘retrospectively taxing them as income tax or corporation tax at the rate of 100%’. The Finance Bill will start the 90 day period that will allow businesses who made an error or mistake from the furlough fund to tell HMRC that they received money to which they were not entitled.
HMRC have already started writing to 3000 organisations every week who have over-claimed from the furlough scheme. These organisations must pay back the extra money to HMRC. They have two available options one of them is to ‘tell the body as part of their next online furlough claim’ or to call HMRC to pay the money back.
After these arrests the next steps taken by HMRC to tackle fraud is through protection: HMRC stated it has 4 types of defences.
Employees had to be on the payroll on or before March 19, this is to make sure only real employees can claim the money.
The only claims accepted are from employers which are known to HMRC.
All the claims must be assessed in 72 hours.
HMRC will have interventions with customers after the money has been paid.
Furlough fraud, currently, is when employers have taken advantage of the CJRS and have claimed more money than they should have. This may have been committed by error or deliberately but HMRC have allowed employers to return the money before they carry out their investigations or even start making arrests. The cases stated above are only the start of these arrests and are to act as a warning to others who have fraudulently claimed money. It demonstrates that HMRC will be taking action and that furlough fraud is a serious crime.