Furlough Fraud – First Arrest Reported

Furlough-specific directors’ liabilities are in the spotlight as news of thousands of cases of suspected furlough fraud come to light.

With the Furlough scheme winding down and lockdown measures being eased, HMRC has announced plans to penalise company directors who intentionally breach the furlough scheme rules.

HMRC officers arrested a business owner earlier this month for a suspected £495,000 Furlough fraud. The business’ bank account was frozen and computers and digital equipment seized.

HMRC has received thousands of reports of suspected fraud linked to the Furlough scheme.

It is predicted that HMRC will focus on the following three potential offences when carrying out checks:

  • Furlough wages obtained and not paid to employees (in full or in part);
  • Furloughed employees and directors worked during furlough; and
  • Employers who coerced employees to work while on furlough.

Provisions on Furlough-related offences and HMRC powers have been made under the Finance Act 2020 (which came into force 22 July 2020) and include:

  • Power to make company directors jointly and severally liable for penalties under the furlough scheme (even where a co-director was unaware of the fraudulent conduct in question);
  • HMRC powers to impose a 100% tax charge on anyone who misapplied furlough funds, e.g. used furlough funds not to pay employees, but to cover other business costs);
  • HMRC powers to impose a 100% tax charge on anyone who has received a payment under the scheme to which they were not entitled.

Employers have a 30-day grace period in which to report maladministration or misuse of the Furlough scheme without being penalised.  HMRC have, however, already started to follow up on tip-offs.

HMRC will be able to investigate claims for up to four years (or longer in the case of careless or deliberate behaviour), but businesses should ensure they are prepared for an HMRC enquiry relating to the Coronavirus Job Retention Scheme grants in the coming months.

Helen Boddy

Helen Boddy is a partner in Boddy Matthews, solicitors specialising in Employment law – www.boddymatthews.com

Furlough fraud is being investigated by HMRC
Furlough fraud is being investigated by HMRC