How the ending of the Coronavirus Job Retention Scheme affects Private Equity and portfolio companie

Following the closure of the Coronavirus Job Retention Scheme (CJRS) at the end of September, HMRC are redeploying their resources to address concerns over the validity of some of those claims. They are not short of incentive, as by their own estimate, there is some £5.28bn to be recovered!

Aside from fraudulent activity which unfortunately will have played a part with some claims, there is recognition that for many businesses it is the high level of complexity that surrounded CJRS claims, often made in the most pressured of circumstances, that will have inevitably given rise to errors and therefore overpayments.

CJRS Changes

With over 500 changes in the rules during the scheme’s lifetime and 35 high-risk areas which we have, ourselves identified, it can reasonably be expected that any HMRC review has the potential to uncover error. That in turn, exposes a business to financial and reputational cost in terms of making good any underpayments, facing possibly significant penalties, and even being named and shamed if considered to be deliberate.

Failing to pro-actively address these risks ahead of an HMRC intervention can only ever exacerbate the problem and inherent in this is the potential within the private equity forum for such liabilities to impact investments in portfolio companies, disrupt exit readiness and add to pre-deal tax “housekeeping” requirements since furlough claims made by target businesses need to be examined carefully to ensure that the purchase price reflects any inherent cost of potential CJRS repayments and penalties.