In March 2020, the government introduced the Coronavirus Job Retention Scheme (CJRS). This enabled businesses to keep employees on the payroll, rather than make them redundant due to the impact of the coronavirus pandemic.

The scheme allows any full-time employee to be furloughed, i.e. suspended or given leave.

How has the furlough scheme evolved?

March—June 2020

Employers had to pay a percentage of the employee’s wages but could claim back up to 80% from the government, up to a maximum of £2,500 per month.

Employees had to be furloughed for a minimum of three weeks and the employer could choose to top-up the remaining 20%.

During this time, employees were not allowed to work for their employer.

July—October 2020

Employees could return to work on a part-time basis. The employer paid employees for the number of days worked, while the government topped up pay for the days employees were furloughed, up to 80%.

From 1st September 2020 employers were required to pay 10% of salaries for the furloughed days, with the government paying 70% up to a maximum of £2,187 a month.

Effective 1st October 2020 employers had to pay 20% of salaries, with the government paying 60% up to a maximum of £1,875 a month.

November 2020—June 2021

The government paid 80% of usual hours not worked, up to a maximum of £2,500.

July—September 2021

The government will revert to paying 70% of usual hours not worked, up to a maximum of £2,187.50. Employers will be required to make up the difference of 10%.

From August, the government will pay 60% of usual wages not worked, up to a maximum of £1,875, with employers making up the 20%.

The scheme will cease at the end of September 2021.

What is ‘furlough abuse’?

Furlough abuse describes a situation in which an employer has claimed money back from the government for a furloughed employee’s wages, but has not complied with the scheme’s rules in some way.

There are various ways an employer could potentially abuse the furlough scheme:

• Asking a furloughed employee to work as normal or voluntarily
• Claiming back too many hours or claiming for an employee who does not exist (or is no longer employed)
• Furloughing an employee but not paying them what they are owed under the scheme
• Backdating a claim to cover a period when the employee was working
• Failing to disclose information, such as a change of circumstances, which affected eligibility for the scheme

What are the penalties for furlough abuse?

In 2020, the government introduced legislation so that HMRC could identify incorrectly reclaimed furlough payments.

It is within HMRC’s remit to:

1. ensure the correct tax is paid on those payments, and
2. penalise those who have deliberately abused the system.

These powers apply if the recipient is not entitled to the amount, in accordance with the scheme under which the payment is made. It also applies if the person ceases to be entitled to retain the amount.

As a result, those who have claimed money back in breach of the rules could find themselves the subject of a tax investigation, or even a criminal investigation.

HMRC’s powers

If the employer was not entitled to the payment, or ceased to be entitled to the payment, the applicable tax rates on those payments changes to 100% of the value of the payments.

HMRC can also recover overclaimed amounts, following a tax assessment. The amount due must be paid within 30 days of the assessment. Interest will be charged from day 31.

Company officers can also be made personally liable to pay the tax charged on overclaimed payments if the company is insolvent.

Repaying unentitled amounts

If employers repay money that has been overclaimed, they will not incur a tax liability relating to the overpayment. However, they must notify HMRC of the overpayment within:

• 90 days after receiving the overclaimed payment, or
• 90 days after the day circumstances changed.

If overpayments are not declared, HMRC has the power to impose penalties regardless of whether the employer made the claim accidentally. They can also publish details of employers that deliberately overclaimed.

If the employer notifies HMRC after the expiration of the notification window, the penalties are likely to be lower than 100% and could be as low as 30%.

Criminal proceedings for furlough abuse

HMRC may choose to bring criminal proceedings if fraudulent activity is detected. In such circumstances, company directors, managers and anyone involved with the alleged offence is at risk of a criminal investigation.

Conviction for fraud can result in fines, imprisonment, compensation, confiscation orders, and director disqualification.