HMRC Disputes

With furlough payments to employees being extended until the end of October, the UK Government believes that over £70 billion will be used to support those unable to work due to the restrictions in place as a result of the COVID-19 pandemic.

This is happening at a time where the exchequer is receiving very little revenue due to the closure of businesses and the deferral of certain taxes.

HMRC have stated they will police the furlough system to ensure that the scheme is not abused or taken advantage of.

As of May 2020, just two months since the furlough scheme was introduced, HMRC have stated they already are conducting over 1,000 investigations into furlough “abuse” relating to their claim of potential misuse of the scheme. With employers being advised to keep furloughed records for five years, it is evident that retrospective checks may be undertaken if HMRC believe there has been some level of misuse.

There are a number of different ways that an employer may potentially misuse the scheme, and HMRC is reviewing all of those through their Risk & Intelligence Service (RIS), and of the indicators that each one will carry.

If HMRC determine that an employer has abused the scheme, then at the very least they will expect the overpaid amounts to be returned along with interest. There is also the strong likelihood that a range of financial penalties will be chargeable to that employer, with deliberate misuse attracting higher penalties than those who were careless.  In the worst cases, HMRC are likely to seek to investigate criminally.

HMRC’s approach, when they find misuse, will also likely be that they will also escalate those enquiries by looking into other areas of the employers and business owners tax affairs. HMRC’s view is that if a taxpayer is treating their affairs incorrectly, or misusing the furlough scheme, then there is a strong chance that they are doing it in other others.

Expert advice should be sought if an enquiry is opened into potential misuse of the furlough scheme. Areas that we can address with HMRC for you include:

• Cases where no misuse has taken place, but HMRC believe that it has.
• Cases where misuse has occurred as a result of carelessness, but HMRC are treating it as deliberate.
• Cases where HMRC believe or challenge that any misuse is fraudulent
• Cases where HMRC are looking to expand the enquiry into other areas of the employer’s tax affairs.