Fraudulent Furlough Claims - Penalties Explained

By Matthew Reymes Cole
07 Sep 2020

The furlough scheme was put in place to support employers who were not able to operate as normal due to the pandemic. However, some employers may have overclaimed.

Unintentionally or otherwise, you could face sanctions if this is not reported and rectified.

Furlough claim mistakes

Your business under scrutiny…

The government is committed to investigating situations where employers have been overpaid grants. Given the cost of the scheme, it’s no surprise that all organisations, large and small, face high levels of scrutiny regarding their use of it.

There are two main actions that constitute an overclaimed furlough grant. These are:

  • claiming any amount the organisation was not entitled to receive; or
  • claiming any amount the organisation was no longer entitled to receive. For example, if the employee they are claiming for is no longer employed by them.

Will I be charged a penalty?

You won’t be charged a penalty if you can show that you didn’t know of the overpayment at the time it was received. Alternatively, you won’t be charged if you can show that your circumstances changed at that time. It must also be repaid within the relevant time periods.

You’ll have until 12 months from when your accounting period ends to rectify errors. Sole trader or partners will have until 31st January 2022.

On 1 July, HMRC updated its guidance on the furlough scheme. This update enabled organisations who have overclaimed through the scheme to correct this error in their next claim. Or, you can make a payment directly to HMRC if you don’t make any future claims. You will, however, first need to contact HMRC. You need to do this to receive a payment reference number before paying via bank transfer, online or telephone banking.

What are the penalties?

Whilst errors can be rectified, failure to report this can incur the following penalties:

  • Income tax charge. Full overclaimed amounts may be recovered if HMRC make a tax assessment for the amount overclaimed. Payment of the assessed amount will be due 30 days after the assessment (otherwise interest will be charged on the tax from day 31)
  • Personal liability for company officers to pay the tax charged on overclaimed grants in the case of insolvency
  • A 100% penalty for failing to notify HMRC within the below notification period. The organisation is chargeable for income tax on an overclaimed furlough grant.

Additionally, it has been confirmed that partners will be jointly liable for any overclaimed grants repayable.

If you repay monies overclaimed, this will prevent any potential tax liability relating to the overpayment of the grant. Notification of overclaimed furlough grant payments need to be made within any of the following periods:

  • 90 days after receiving the overclaimed payment
  • 90 days after the day circumstances changed, or
  • by 20 October 2020.

Expert support

If you need extra support with your furlough claims, speak to one of our experts today on 01455 858 132.

About the Author

Matthew Reymes-Cole

Matt joined Croner in 2007 as an employment law consultant and has advised clients of all sizes on all aspects of employment law. He has worked within management positions since 2017 and currently oversees a team within the litigation department, whilst continuing to support a number of clients directly.