What is furlough fraud?
When the Covid-19 pandemic struck and people were unable to enter their workplaces, the furlough scheme was a safety net for them. Under it, the government provided income for people who would otherwise have lost their income, stepping in for those businesses that could not operate and generate revenue as usual. As a result, millions of people kept their jobs throughout the most disruptive days of the pandemic.
Fraudulent claims can involve employers making claims for more hours than employees worked or claiming funds for employees who continued to work as normal. There have even been instances of companies claiming money for completely non-existent employees.
Levels of furlough fraud fell significantly when flexible furlough arrangements were introduced, which allowed employees to work part time while their employers still retained some funding.
What are the penalties for furlough fraud?
If employers can demonstrate that they made a genuine mistake when submitting a claim, they may only have to return any overpayment due to HMRC. If a business realises that an overpayment has been made, the company may be able to prevent penalties by amending a claim within 90 days of receiving the grant. When it’s deemed necessary, HMRC can recoup overpayment monies using income tax charges.
People involved in the management of a company can be held liable for overpayments if the company itself has little or no assets with which to pay. Individuals can also be charged with fraud in criminal proceedings and directors might be disqualified from acting as a director – as specified by the Company Directors Disqualification Act 1986.
Whatever the details of the case, if you’re accused of a crime such as furlough fraud, it’s vital to contact a firm of fraud act offence solicitors like Lawtons as soon as possible. A prosecution for fraud can obviously have a huge impact on a business’ reputation, so swift legal advice from experts is a must.
How does HMRC investigate furlough scheme fraud?
When investigating potential furlough fraud, HMRC has significant powers at its disposal. Over £100 million has been invested in a Taxpayer Protection Taskforce to investigate claims, which includes more than a thousand HMRC staff.
Members of the taskforce conduct data analysis to evaluate whether claims are likely to be genuine or not. In assessing claims, HMRC will sometimes contact companies to request evidence for their claims, if it is viable or worthwhile to do so. Companies who do not produce sufficient evidence can be liable for repaying furlough payments.
Going further, HMRC can request that business records are handed over to them, including emails to confirm employees’ identities and establish when they were or weren’t working. Business premises can be searched to uncover possible evidence and HMRC can also formally interview suspects under the Police and Criminal Evidence Act 1984.
Of course, HMRC has access to detailed financial data that can uncover furlough fraud. For example, their analysts can examine sales data to determine whether or not trade activity levels indicate fewer staff were working during a certain period.
Members of the public can call a hotline to report suspected cases of furlough fraud, and these tip-offs also provide a valuable source of information and evidence.
Through its investigations, HMRC recovered £536 million in furlough funds in just one year, from 2020 to 2021. It expects to recover a total of around £1 billion for the period from 2021 to 2023.
What are the criminal offences covering furlough fraud?
Needless to say, fraud accusations are an extremely serious matter and can have long-lasting repercussions for your business.
Under the Fraud Act 2006, there are three criminal offences that could relate to furlough fraud. The first is fraud by false representation, which could involve claiming for non-existent employees, claiming for employees who didn’t go on furlough or claiming for more hours than employees worked.
Fraud by failing to disclose information could be another possibility. This offence could be committed if a change in circumstances impacted furlough funding eligibility but was not communicated to HMRC.
And if multiple people were involved, the charge could be conspiracy to defraud, when a ‘false statement is made with the intention of cheating the public revenue’.
Other potential charges include false accounting and even money laundering.
Who can be prosecuted for furlough fraud?
From middle managers and senior management to directors and perhaps even shareholders, prosecutions for furlough fraud might have any number of targets. Essentially, anybody who was directly or indirectly involved in the management of a business – at the time of the claim – can be prosecuted for the crime.
Furthermore, they can be held jointly and severally liable if a company defaults on its debt repayments to HMRC.
Reporting furlough fraud
Enlisting the help of the general public in cracking down on misuse of furlough funds, HMRC introduced greater transparency around the furlough scheme. Employees could check whether they were included on a company’s furlough claim, through their online personal tax account. Then they could report it if they didn’t belong on the claim: either because they were still working during the lockdown or were no longer with the company.
The actual process of reporting furlough fraud was made simple: people could do it online or call a hotline. As a result, HMRC received more than 30,000 reports from members of the public.
If you stand accused of furlough fraud, contact our expert solicitors immediately to secure the best outcome possible.