20 July 2022
Employment tax issues can have a major impact on hospitality businesses. One of the hottest topics in this arena right now stems from past CJRS claims.
Our latest Restaurants and Bars report and Hotel Britain report also looks back at performance in 2021 and ahead at the trends we expect to see in 2022.
Coronavirus Job Retention Scheme Claims
One of the areas we are constantly discussing with our clients is the possibility of HMRC carrying out a review of their CJRS claims, that could potentially lead to repayments of CJRS grants, paying employees underclaims and the prospect of penalties. Our experience from reviewing claims is that in most instances, errors have been made, which is understandable when we know the calculations are not at all straightforward and there are over 400 changes to HMRC’s own guidance on the subject. Some are unsure whether errors have been made and if it would be best to wait for HMRC to knock on the door instead of looking at beforehand. Our specialist team believe that a proactive approach should be taken, not only to reduce any potential penalties arising from non-disclosure or securing agreement to over and under claims but also to free up the internal resources that would otherwise be needed dealing with the line-by-line reviews from HMRC that are coming.
Headlines you should be aware of:
- HMRC are actively investigating CJRS claims made by the Leisure and Hospitality sector, largest claims first and particularly those that have not responded to CJRS nudge letters
- HMRC allocated £150m resource to review CJRS claims with a 300 strong task force
- HMRC’s approach to an investigation is a line-by-line review of all claims and will not enter into negotiation based on sample extrapolation exercises
- HMRC estimate that 8.7% of claims are incorrect – out of total claims of £70bn it means HMRC consider there is a potential yield of around £6bn
- HMRC’s hard line is that where employees are underpaid and the business do not repay the amounts to employees, HMRC will throw out the entire claim for that month
- HMRC’s view is that if a claim has not been prepared/reviewed by professional advisers, any errors would be because of reasonable care not being taken and therefore increasing the potential penalty
- Where voluntary unprompted disclosures are made, it is possible to secure a 0% instead of 30% plus penalty
- CJRS is complex in the sector because of numerous payroll runs/transient work force/employees not on fixed monthly salaries
- CJRS legislation implemented overnight with 35 areas of risk; over 400 changes to HMRC’s guidance; and 4 versions with differing rules
- The amount of the CJRS grant claimed and confirmation that the figure is correct is subject to a statutory Corporation Tax return
- Case Study “A hotel chain with over 1000 employees claimed over £1m of CJRS per month. Managers at each hotel were separately responsible for making that hotels’ CJRS claims. Fortunately, an external review of the processes used, identified significant amounts overclaimed – this meant that these could be repaid, and an agreement struck with HMRC that no penalties would be sought as the errors were voluntarily disclosed.”
- Case Study “To prevent the risk of overclaiming CJRS, a restaurant chain decided it would be easiest to calculate furlough pay using the lower of the three tests for calculating relevant pay. Unfortunately, this resulted in an underpayment of furlough pay to employees: this error would have, invalidated all of their CJRS claims – a substantial amount. Fortunately, an external review identified the mistake so that payments to employees could be rectified before HMRC raised an enquiry into their claims.
How BDO can help
Our Employment tax specialist would be happy to discuss how we can support you with the above topics or any other employment tax related matter.
We have a risk review tool that will assess all the processes that need to be implemented as part of your CJRS claims process. Our assessment produces a risk assessment heatmap and a RAG summary report of potential risk areas, which can be used for sample testing if necessary. We can also prepare calculations and provide support with any subsequent approach to HMRC.