Back in the March 2021 Budget, the Chancellor announced a £100m investment in setting up a dedicated team within HMRC to review CJRS claims, as it is estimated that anywhere between £3.5bn and £7bn has been incorrectly claimed. This new unit (sitting within HMRC’s Customer Experience, Professionalism and EU/UK Transition (CEPET) team) is staffed by officers drawn from across HMRC, with many National Minimum Wage inspectors being drafted in.
Although targeting furlough fraud, HMRC has also stated the unit 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 getting the right data off their systems.
Even though the deadline for correcting CJRS claims via entries in corporation tax/income tax returns is yet to expire in many cases, HMRC’s new unit has now started to open post-claim compliance checks into employers’ furlough claims (it has a special power to do this under Sch 16 FA 2020).
The process starts with HMRC issuing enquiry letters to businesses that made CJRS claims; the letter is accompanied by various other documents, including HMRC’s factsheet. This opening letter requests very detailed information on every employee for whom furlough monies were claimed. The letters give a short timescale to provide the information to HMRC (and copies of the letters will not necessarily be sent to the employer’s agent).
If the employer cannot meet the deadline for providing the information to HMRC, it is important to contact HMRC to show that the employer does wish to co-operate, why the deadline cannot be met, and to suggest an alternative realistic deadline.
Ignoring such letters from HMRC can be an expensive mistake. Where a taxpayer does not respond to the initial enquiry letter, HMRC may issue a formal ‘information notice’ (under powers in Sch 36 FA 2008) to obtain the data it needs for the compliance check. If it has to go to this step, this may detrimentally affect the amount of any CJRS penalties charged, should HMRC find errors in the claims made.
Tax return reporting
It is important to remember that the latest versions of corporation tax and self-assessment tax returns include boxes to disclose the CJRS payments the employer has received and there is also an ‘opportunity’ to include a figure for any CJRS over claimed in error. There is a risk that if this adjustment figure is completed without any kind of external review, it will compound the error as there will now also be an incorrect tax return.
It is quite possible that HMRC will issue enquiry letters where CJRS figures disclosed on tax returns do not tie up with its own records, or where it believes that any correction figure in the return is inaccurate. And if an enquiry letter is received before your return for the relevant period is submitted, it is vital that the CJRS figures for the return are checked thoroughly as part of the ongoing response to the enquiry.
Were your furlough claims 100% accurate?
If you have not had your CJRS claims externally reviewed, it is sensible to do so soon: if errors are identified, you then have a chance to put them right and make the correct disclosures on your tax returns before HMRC starts to enquire into your claims.
Correcting errors yourself is always a quicker, cheaper and less stressful process than dealing with an HMRC enquiry. An ‘unprompted disclosure’ to HMRC can reduce any related penalties to zero, but a ‘prompted disclosure’ (for example, following an enquiry) will automatically trigger a 15-30% penalty on the tax due which, in this case, will be 100% of the CRJS payment that was over-claimed.
Carrying out an external review of your claims also helps to demonstrate to HMRC that you are taking “reasonable care” to get things right; this also helps to reduce any penalties that may arise from compliance mistakes.
Read more about BDO’s CJRS Claim Review Service
Read our full CJRS guidance.