Fraudulent Coronavirus Job Retention Scheme payments could hit £3.5bn

According to new statistics released by HM Revenue and Custom (HMRC) today, up to £3.5bn in Coronavirus Job Retention Scheme payments may have been claimed fraudulently or paid to claimants in error.

Initially, the furlough scheme paid 80% of the wages of employees placed on leave since March, up to a maximum of £2,500 a month.

The government have, however, announced major changes to the furlough scheme, as they will now only pay 70% of wages up to a cap of £2,190 a month.

Employers are already paying employees’ pension contributions and National Insurance, but will now have to pay 10% of salaries as well.

In October, the government will pay 60% of wages, up to a cap of £1,875. The employers’ share of the bill will then go up to 20% of wages.

The furlough scheme is due to finish at the end of October and Chancellor Rishi Sunak has had to repeatedly rule out an extension to it.

In total, HMRC estimates that 5-10% of the furlough schemes has been wrongly awarded since it was introduced earlier this year. To date, more than £36bn has been given by the government to fund the programme – with the end total set to be up to £80bn.

HMRC’s Permanent Secretary Jim Harra said: “We have made an assumption for the purposes of our planning that the error and fraud rate in this scheme could be between 5% and 10%. That will range from deliberate fraud through to error.

“What we have said in our risk assessment is we are not going to set out to try to find employers who have made legitimate mistakes in compiling their claims, because this is obviously something new that everybody had to get to grips with in a very difficult time.

“Although we will expect employers to check their claims and repay any excess amount, what we will be focusing on is tackling abuse and fraud.”

3.5 billion could just be the tip of the iceberg

The ‘missing’ £3.5bn pounds that HMRC has estimated has been fraudulently claimed or paid in error may be just the tip of the iceberg, say tax and advisory firm, Blick Rothenberg.

Fiona Fernie, a Disputes Resolution Partner at the firm said: “Some £35bn has been paid out to protect jobs during the pandemic; just how much off this has been erroneously claimed is not yet clear but HMRC say that it could be up to 10%.

“However, this figure is purely an estimate and has been issued just a couple of weeks after HMRC issued the first 3,000 letters to firms asking them to check the amounts that they had claimed and warning them that they were under investigation.

“With many more businesses already under review with a view to investigation, it remains to be seen whether the estimate is accurate. Only once the investigation programme is fully under way will it be possible to assess whether the problem is greater than currently anticipated.

“HMRC have set up a ‘furlough scheme task force which is looking at the huge amounts that have been wrongly claimed to get as much of the money back into the Chancellors coffers as possible.”

She added: “Just because a firm has not yet received a letter does not mean that they won’t get one shortly and as the furlough scheme comes to an end and people lose their jobs, many disgruntled employees may turn on employers who they know abused the scheme. HMRC is encouraging anyone who feels their employer may have been fraudulently claiming furlough to report it.

“HMRC has already received over 8000 calls on its fraud hotline claiming abuse of the system, but it has also been using its own risk analysis techniques to identify potential abuse, which has identified 27,000 cases where they think there is a risk of serious error.

“The CJRS payments have kept people in employment beyond lockdown but reports suggest that now that it is coming to an end 60% of mid-size businesses are looking to shed staff.”

Fiona concluded: “Now is the time for companies who have over claimed to come clean even if it was in error and get their house in order before that letter drops onto the mat or they get an enquiry email – because at that point they will be ‘under investigation.

“HMRC are primarily intent on tackling those that have used the system fraudulently from the outset, but Jim Harra (HMRC’s permanent secretary) has made it clear that although they won’t be pursuing erroneous claims at present due to the circumstances, HMRC expects employers to check their own claims and repay any excess amount.

“This begs the question whether those that don’t bother to make the checks or those that do make them but “forget” to make the appropriate repayment of the excess, effectively become fraudulent users of the scheme rather than just claimants who have made a mistake, which would then place them squarely in the firing line for an HMRC investigation.”