The Coronavirus Job Retention Scheme (CJRS or Furlough) was very welcome relief and a saviour for many UK businesses and the economy. HMRC handled the management of the scheme well, however, it had to be implemented in a very short timeframe and the mechanism for claiming a CJRS grant was very complex and changed with each iteration of the scheme. Read more on the different versions of CJRS here.
Understandably, with the complexity of the scheme it is almost inevitable that unintentional mistakes will have been made. It has been well publicised that there are likely to have been inaccurate and excessive claims made by businesses as well as claims which were fraudulent: HMRC estimates that there were £5.8 billion of erroneous or fraudulent CJRS claims.
With the potential recovery rate is estimated to be so high that the Government launched a task force (which received funding of £100 million) to specifically identify CJRS fraud and to claw back excessive claims.
With the Government’s focus now turning to economic recovery, HMRC have taken the next step in trying to recover erroneous or fraudulent CJRS claims. As is now quite common practice for HMRC in respect of the tax affairs of individuals, it has started issuing 'nudge' letters to companies. The first round was issued in the Autumn of 2021.
While, HMRC can open formal enquiries in a company’s Self-Assessment tax return as a mechanism to check CJRS claims, this is a resource intensive exercise – read more here. Nudge letters are easier for HMRC to use and invite companies to check their CJRS claims and within 30 days, either:
- File an amended return, or
- Write to HMRC to confirm that their return is correct.
What to do if you have been ‘nudged’
The 30-day deadline could be considered tight in most circumstances simply because the claims process, as discussed above, was very complex and changed many times.
Therefore, it is important not to ignore these letters and to seek specialist advice as soon as possible both to help check the accuracy of your claims and to discuss the options open to the Directors of a company in the event a claim is incorrect.
Simply filing an amended corporation tax return (if that is needed) will not resolve the matter – HMRC's letter does not explain how to pay any additional tax and associated late payment interest. There may also be tax-geared penalties for errors or CJRS failures to notify (which will be increased because this letter was issued so the disclosure is classed as ‘prompted’ rather than a voluntary unprompted disclosure). Just amending the return leaves the penalty position unresolved and does not obtain confirmation that HMRC agrees with the revised return.
Failing to deal with the letter or not correcting the company's position properly may also result in a formal enquiry into other aspects of the company’s Self-Assessment tax returns.
If you have received one of these nudge letters, then please do get in touch with one of our experts listed below who will help you respond to the nudge letter in the best way.
Not nudged yet?
If you have not received a nudge letter but made claims under the CJRS, we would strongly recommend that you take a proactive approach to this matter and review the CJRS claims. If you can’t be certain that all your CJRS claims were 100% correct, it is sensible to get them reviewed by a specialist to:
- Identify risks and errors
- Plan the best way to correct them
- Prove to HMRC that ‘reasonable care’ has been taken in fulfilling the company’s compliance obligations -particularly important if your company is within the Senior Accounting Officer rules.
The benefits of proactively reviewing your CJRS claims are not limited to interactions with HMRC. The accuracy of CJRS claims now regularly feature in due diligence exercises for both a sale transaction and refinancing arrangements because purchasers and lenders recognise the risk they pose. Additionally, company Directors have fiduciary obligations and, whilst advice in respect of these is best sought from specialist lawyers, the Companies Act places obligations on Directors to act in the best interests of the company, with sanctions if they fail to do so.