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The CJRS Fraud and Penalty Regime

CJRS

As HMRC’s chief executive, Jim Harra, stated during an evidence session to the House of Commons Accounts Committee, any scheme which pays out as much money as the Coronavirus Job Retention Scheme (CJRS) can be expected to act as a “magnet for fraudsters”. In other words, HMRC are expecting the CJRS to be the target of fraud, and fully intend to use their powers to investigate and tackle abuse.

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What form is fraud expected to take?

There are two main areas where the CJRS is vulnerable to fraud.

  • Employees working while supposedly furloughed, so CJRS grants are paid where they are not due.
  • Employers not paying the correct amount to their employees, and diverting part of the grant to other purposes.

HMRC’s enforcement activity is likely to focus on these two areas of vulnerability, so they will be actively looking for instances where employees worked while furloughed, or have not been paid the correct amount.

What the CJRS allows

The CJRS rules define a furloughed employee as one who “has been instructed by the employer to cease all work in relation to their employment”. HMRC guidance goes on to confirm that employees can undertake work-related training, but must not work to generate income or complete administrative tasks.

As the director of your limited company, you are allowed to carry out your statutory duties as a director, which includes maintaining and filing all statutory records for your company, and fostering the company’s business relationships with suppliers, customers and others.

Protecting yourself from investigation

Activity which generates income for your company would disqualify you from claiming the CJRS grant. In order to protect your company from investigation and enforcement action by HMRC, you should ensure that you conclude your furlough period and make your final claim before beginning to generate income for your company.

You also need to ensure that the grant is paid to your employees as intended. Even where you’re only claiming for yourself, the grant must be paid to you as salary and not used for any other purpose. If your company is under financial stress, you could seek alternative help such as a business interruption loan or deferred tax payment.

What powers does HMRC have?

Draft legislation published on 29th May gives HMRC powers to investigate abuse of the CJRS, raise assessments to reclaim CJRS grants which were claimed incorrectly or not paid to the employee, and impose penalties where appropriate.

Penalties

HMRC have stated that penalties will not be applied if the employer informs HMRC either within 30 days of making the claim, or within 30 days of the law being passed. These provisions are expected to be included in the Finance Act 2020 in late July. If you believe you may have claimed incorrectly, this gives you some time to correct the error. We’d advise you to discuss it with your accountant as soon as possible.

Where penalties are applied, they will be 30% - 100% of the tax charge that claws back the grant, where a voluntary disclosure is made, and 50% -100% of the tax charge where HMRC prompts the disclosure.

This means that breaking the CJRS rules could mean you have to pay up to 200% of the over-claimed amount.

If you have any questions or if we can help in any way please call our expert team on 01296 468 483 or email info@orangegenie.com.

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