FURLOUGH FRAUD AND THE FINANCE ACT 2020

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The Coronavirus Job Retention Scheme (the “Furlough Scheme”)

The coronavirus pandemic (COVID-19) detrimentally impacted not just public health, the NHS and other vital public services, but the economy as a whole.  The impact of the “lockdown” was that overnight a lot of businesses closed or experienced unparalleled revenue shrinkages. This placed jobs at risk. If employers could no longer generate revenue then they could no longer keep on employees.  The spectre of redundancy loomed.  In response, the government introduced The Coronavirus Job Retention Scheme (the ‘Furlough Scheme’). Instead of mass redundancy, businesses could retain staff, as an alternative to redundancy.  By placing an employee on “furlough” they could retain them, paying their salary and in return receive a reimbursement from the government for 80% of the employee’s monthly salary, subject to a maximum cap of £2,500 per month.

The provisions came with the strict requirement that an employee must not, either of their own voluntary action, or at the behest of the employer provide a service for their employer or indeed generate any income. In essence, whilst on “furlough” they must not work (save for some exceptions).

Furlough Fraud

Inevitably, this scheme has now given rise to concerns that some employers have wrongly made claims to the scheme.  Some of those wrong claims might be genuine mistakes by businesses at a time of immense pressure, whilst others might be the result of more sinister actions.  The term “furlough fraud” has now appeared in the narrative. Fraud is defined in the Fraud Act 2006. In general, furlough fraud and wrongdoing could fall into a range of criminal offences. HMRC may consider the following offences:

  • Fraud by false representation
  • Fraud by failing to disclose information
  • Fraud by abuse of position
  • False accounting
  • False statements by company directors
  • Conspiracy to Defraud
  • Failing to Prevent Tax Evasion

This might capture a huge range of factual scenarios such as:

  • Employees working in other jobs when they should not have been because they were on “furlough”
  • Employers may have persuaded or forced their furloughed staff to work
  • Other employees may have been technically furloughed, without their knowledge, so continued working whilst technically on furlough
  • Businesses may have made claims for furlough payments for staff that did not exist
  • There are also concerns that some employers may have misrepresented the working hours of their staff, so as to maximise payments from the furlough scheme

It appears HMRC have received large numbers of reports from the public of allegations of furlough fraud. HMRC in turn have released a public statement promising to investigate and criminally prosecute those alleged to have engaged in serious furlough fraud.

Recently, it was reported that a man from the West Midlands was arrested as part of an HMRC investigation into a suspected fraud on the Furlough Scheme valued at nearly half a million pounds. Whilst that particular investigation seems to be part of a wider multi-million pound tax fraud and allegations of money laundering, the message has been sent out loud and clear. HMRC will investigate allegations of mistaken or fraudulent claims.

This places an enormous pressure on businesses and individuals to act quickly if they are concerned that they may have been impacted or in some way caught up in furlough fraud.  This is because of the prospect of securing leniency from heavy fines, penalties or criminal sanctions.  This amnesty lasts for only 90 days.

The Finance Act 2020, leniency from huge penalties, fines or criminal sanctions 

As quickly as the government acted to try and save jobs, they have been equally quick to act in response to concerns about furlough fraud. The Finance Bill 2019-21 received the Royal Assent on 22nd July 2020 and became the Finance Act 2020. Included in it are civil penalties where payments made under this scheme have not been used to pay employees and satisfy tax implications. Under the Finance Act 2020, HMRC will have the power to recover payments to which the recipient was not entitled (together with penalties and fines in serious circumstances).

In order to investigate allegations of furlough fraud, HMRC will be given a wide range of powers.

Despite the power to impose harsh penalties, fines or criminal sanctions, HMRC have stated that they will be lenient in circumstances where genuine mistakes have occurred. It does, however, seem that it may be more difficult to secure leniency in circumstances of intentional furlough fraud, as compared to a genuine mistake.  It is, therefore, vital to receive expert legal advice about this. There is a 90 day amnesty, within which a business or individual can avail themselves of this leniency through making a report. This gives a relatively short window within which a business or individual should review their furlough claims and make a notification.  If you are concerned, then it would be beneficial to act urgently.

Where a genuine mistaken has been made, it is vital that these are all set out clearly, accurately and persuasively to HMRC to ensure that heavy penalties or fines, or a criminal investigation or prosecution, does not ensure in circumstances where it should not. Where you are concerned you may have made a mistake and want to avail yourself of leniency, it is vital to instruct lawyers and engage HMRC as quickly as possible. Likewise, where you are facing a criminal investigation for furlough fraud.

Here at Hodge Jones and Allen Solicitors, we understand that the Furlough Scheme was introduced in the face of unexpected global crises. Employers and their staff had little time to get to grips with the provisions and make sure they were properly implemented. Claims to the furlough scheme will have been made in a wide range of circumstances and whilst under unprecedented stress and extreme pressure:

  • At a time, when you faced the prospect of losing your business or your job
  • At a time, when the health of loved ones may have been impacted by the Coronavirus pandemic
  • At a time, when you are trying to juggle your work pressures with home life, perhaps whilst your children were off school
  • Or at a time when you may have no knowledge of any claim having been made at all. You may have inadvertently become the subject of a furlough fraud through the actions of another

In all of these scenarios, it is important take legal advice on your position. We can:

  • Quickly and accurately analyse your circumstances and engage HMRC in negotiations to maximise your opportunity of avoiding heavy penalties, fines or criminal sanctions
  • Where you are facing a criminal investigation or prosecution, we can help to navigate this too

Joint heads of financial crime and regulatory Kiran Mehta and Ruth Harris, at Hodge Jones and Allen Solicitors, are well placed to provide advice in these types of situations.  They can provide expert advice and representation in connection with concerns that you may have about furlough fraud.

Kiran Mehta and Ruth Harris have acted in numerous circumstances where concerns about fraud have arisen.  They have decades of experience and a proven track record of success in averting the threat of prosecution often securing civil settlements and leniency instead of criminal prosecutions. If a criminal investigation or prosecution occurs and you have a defence then we will identify it and deploy it to try and preserve your reputation and your liberty.

Article Credit: https://www.hja.net/furlough-fraud-and-the-finance-act-2020/