CJRS errors and set-offs – 90 days to put them right or tell HMRC

13 July 2021

Most would agree the package of support that the government has provided through the Coronavirus pandemic is unprecedented. But it will not tolerate fraudulent claims: the police have already made arrests for furlough fraud. Read more about the CJRS inquiry letters that HMRC’s specialist team has begun to issue.

BDO offers a CJRS Claims Review Service and a  CJRS calculation support service  so please get in touch if you want to review past claims and gain peace of mind.  If you are not in a position to repay over-claimed amounts within the 90-day deadline, or if you have missed the deadline, please contact us for advice on making the right disclosures to HMRC.

Legislation added to Finance Act 2020 uses the tax system to claw back fraudulent or incorrectly claimed income support payments – i.e. payments claimed under the Coronavirus Job Retention Scheme (CJRS) and the Self-employed Income Support Scheme (SEISS). This includes situations where an employer did not pay the government furlough payments to employees in full so loses entitlement to it. The legislation claws back payments that the recipient was not entitled to by converting each £ of excess or wrongly claimed payment into a £ of income tax liability – i.e. 100% clawback. By deeming it to be a tax liability, the government can then use HMRC’s established legal and practical machinery to clawback the funds.

Where a business or individual is aware they received or retained any government support payment in error, this must be notified to HMRC by the later of 90 days from Royal Assent (i.e. 20 October 2020), 90 days from receipt of the payment or 90 days from loss of entitlement to the payment. As the clawback amounts are treated as tax, they are due on the usual tax payment dates for individuals and companies (although, for large companies, tax on payments to which the companies were not entitled will not affect quarterly instalment payments). However, HMRC has the right to raise an assessment to claw back such excess payments at any time. If it does, payment is then due 30 days after assessment (unless there’s an appeal with postponement or a time to pay agreement). If the excessive payments are repaid or assessed then they don’t need to be put on the recipient’s personal or business tax return.

Our experience suggests that many businesses implemented claims in a rush at the start of lockdown: they should now check and double-check that the amounts they claimed were right. Making sure the paperwork is accurate and government guidelines are adhered to is key.

The dangers of setting-off errors

HMRC has created a facility to allow businesses to pay back over-claimed amounts for the CJRS (and SEISS): if you use this to fully correct any errors, there is no need to make a formal disclosure to HMRC.

However, even if you have already repaid over-claimed amounts, it is sensible to get your position checked in detail. In many cases, calculating CJS claims can be complex and it is no surprise that errors are made in claims. HMRC allows for this by including an ‘Overclaims’ box on the claim but it is important to make sure that this is used correctly and there are differences between the time limits for reporting over and under claims: overclaims must be reported within the 90 day limit explained above, but underclaims must be corrected within 14 days of the date of claim (although this 14 day limit has only applied since 1 November 2020). 

Recent guidance from HMRC has also confirmed that claims must be considered at an individual employee level and on a period by period basis when it comes to setting off claims, for example:

  • An over claim for one employee cannot be set against an underclaim for another – even in the same pay period
  • An underclaim for an employee in a past month cannot be set against an overclaim for the same employee in the current month
  • Negative numbers should not be entered on the template spreadsheet forms for multiple employee claims, instead adjustments must be made through the ‘overclaim’ box on the main claim form. 

While the rules may not seem entirely equitable, any employer who has been setting-off past errors in current claims throughout the pandemic should check very carefully that they have followed the set-off rules correctly: any amount of furlough payment retained incorrectly as a result will be treated as a taxable payment by HMRC. 

And, if there is £1 still owing to HMRC, technically you need to notify it of the error and could face a “failure to notify” tax penalty if you don’t do so within the 90 day limit. Where a deliberate behaviour penalty is charged for a failure to notify, then companies and individuals may be treated as ‘deliberate defaulters’ and publicly named on HMRC’s website.

The final reckoning 

Once the furlough scheme comes to an end, we expect that HMRC will be checking claims made by employers, and it is important to remember that taxpayers are required to keep evidence supporting their claims. 

For those where HMRC suspects fraud, we can expect serious more in-depth investigations into furlough claims. For example, while employees that are on holiday can be put on furlough, if there is an extensive pattern of employees being flexibly furloughed while they are on leave, HMRC will naturally suspect fraud. Such investigations are also expected to be extended to the wider business and personal affairs of the business owners involved. The new legislation includes powers to pursue company office holders where businesses become insolvent, with joint and several liability.

Read our full CJRS guidance for further information.