Are you at risk of an HMRC furlough enquiry?

For motor retailers the Coronavirus Job Retention Scheme was a lifeline two years ago. However, as the dust settles with the end of the CJRS and COVID-19 hopefully in the rear-view mirror, HMRC’s focus has just begun.

There are several areas commonly seen within the sector which could impact whether a CJRS claim has been made correctly or not. The list below is by no means exhaustive, but the key areas are:

Fixed v variably paid employees – the calculation and data required to establish an individual’s reference pay varies significantly depending on whether they are determined to be fixed or variably paid. In broad terms a fixed paid employee’s pay wouldn’t change with the number of hours worked whereas variably paid employees would.

Bonus and Commissions – only non-discretionary pay can be included in the reference pay calculations and as such care needs to be taken when establishing whether various pay elements are contractual or not.

Overtime – can either be discretionary or non-discretionary. HMRC consider it non-discretionary when the employer is “contractually obliged to pay the employee at a set and defined rate for the overtime” worked.

Substantial Overtime – in August 2020 there was a change in HMRC guidance which meant that if an individual had historically been classed as a fixed employee but had worked a “significant” amount of non-discretionary overtime during 2019-20 then they should be classed as variable employees for all future claims.

The bottom line

If any of the above areas are dealt with incorrectly then this would have a direct impact on an individual’s reference pay.

As this is the starting point for all CJRS calculations if refence pay is incorrect then despite considering the other elements of the calculation, (top up pay, claim periods, furlough start and finish dates, flexi-furlough, usual hours calculations etc), the claim will be wrong.

HMRC scrutiny has only just begun

With the ability to claim CJRS now closed we have seen that HMRC have started their enquiries. Due to an estimated loss of £7bn, a £100m investment has been made in setting up a dedicated team within HMRC to undertake this.

Although targeting furlough fraud, HMRC have also stated they will be looking to enforce the CJRS guidance to maintain its integrity. This has the potential to catch out some businesses who may have taken a short cut in the calculation due to issues in extracting the right data from their systems.

There is also now a further checking process included within corporation tax returns as HMRC are asking all businesses to confirm that they have made an accurate claim and have included this within their statutory accounts and corporation tax calculations.

With the amount of resource now reviewing CJRS claims there is an increased chance of being selected for review either because the business profile contains known risk areas or simply being part of the random selection.

What next?

There are several do’s and don’ts which you can undertake to help protect your business position summarised below:

Do	Don't
Be prepared establish evidence record (“defence document”) of decisions made and why	Assume all is ok HMRC made clear employer’s responsibility to check, even if claims were outsourced guidance is clearer now
Consider third party review it helps demonstrate to HMRC “reasonable care” taken which in turn minimises penalty position it facilitates a voluntary unprompted disclosure which is cheaper than a CJRS HMRC enquiry	Delay in notifying HMRC of any potential overclaims behaviour significantly affects penalty position
Repay overpayments even if outside 90-day window	Hope HMRC won’t investigate HMRC are ploughing significant resources into investigations which increases the chances of having one
Do top up underpayments to employees an underclaim of CJRS entitled to means a likely underpayment to employees underpaid employees are non-qualifying employees for CJRS and so HMRC may requests all amounts claimed for that individual employee to be paid back

Don't

Be prepared

establish evidence record (“defence document”) of decisions made and why

Assume all is ok

HMRC made clear employer’s responsibility to check, even if claims were outsourced
guidance is clearer now

Consider third party review

it helps demonstrate to HMRC “reasonable care” taken which in turn minimises penalty position

it facilitates a voluntary unprompted disclosure which is cheaper than a CJRS HMRC enquiry

Delay in notifying HMRC of any potential overclaims

behaviour significantly affects penalty position

Repay overpayments

even if outside 90-day window

Hope HMRC won’t investigate

HMRC are ploughing significant resources into investigations which increases the chances of having one

Do top up underpayments to employees

an underclaim of CJRS entitled to means a likely underpayment to employees
underpaid employees are non-qualifying employees for CJRS and so HMRC may requests all amounts claimed for that individual employee to be paid back

If you’re still not sure that your CJRS claim is correct or would simply like some assurance that it is, then more information on CJRS and how we can help can be found at: Coronavirus Job Retention Scheme (CJRS) | Furlough Scheme explained - BDO

Alternatively, please contact Chris Bond at chris.bond@bdo.co.uk