Furlough – actions employers should consider before the 20 October HMRC deadline

Payroll news from Vero Pay’s specialist team

In our previous Furlough blog we highlighted how important it is to check furlough payment claims, and that HMRC had announced a 90 day ‘amnesty period’ for employers to put right any errors. This applies to furlough claims submitted prior to 22 July 2020. Furlough claims raised after 22 July each have a 90-day amnesty period.

The deadline of 22 October 2020 isn’t far away now – so this blog is a timely reminder for internal audits/checks to make sure everything is in line with the scheme rules.

Naturally, given the speed at which the Coronavirus Job Retention Scheme (CJRS) was introduced and that the rules emerged over time, some employers will have inadvertently made incorrect claims. There are, of course, others who have deliberately claimed fraudulently.

Under HMRC’s amnesty period, employers that have found claims to be either wrong or fraudulent, can put their claims right without fear of prosecution, investigation or fines. What’s more, there’s no limit on how many ‘honest Joe’ amnesty updates you can make.

Failure to take advantage of the amnesty period could lead to HMRC audits, penalties, public naming and even prosecutions. HMRC have already made numerous arrests for furlough fraud.

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How HMRC will approach identifying employers who have made incorrect or fraudulent claims. 

HMRC have advised that they will adopt a ‘risk-based’ approach to identifying incorrect or fraudulent claims.

This could, for example, focus on certain sectors that show an historical trend for errors and fraud. A key factor will be whether the claim ‘looks right’. Where errors are found, HMRC will write to employers giving them an opportunity to rectify their claim.

Letters started to be issued by HMRC from mid-August, with thousands sent to employers each week. HMRC have also started following up 8,000 furlough fraud accusations received via their portal. All large employers are receiving letters encouraging them to check and correct their claims.

A clear message is that, for honest mistakes, HMRC will work with you to correct your claim rather than trigger an investigation.

Common errors found in Furlough claims 

The most common reasons why furlough claims are likely to be wrong or invalid are as follows:

  • Unauthorised working or asking an employee to undertake activities – which HMRC will interpret as working during furlough
  • Incorrect reference point used for employees with variable salaries
  • Pay not being topped up for employees on annual leave
  • Reference salary calculated gross, rather than net of salary sacrifice items
  • Incorrect treatment of NIC categories (assumed all are category A)
  • Employees having a furlough salary of less than 80% of reference pay or £2,500
  • Pay not being topped up for apprentices undertaking training
  • Inclusion of new starters not included on relevant RTI (Real Time Information)
  • Incorrect pro-rating of the £2,500 cap for part-time employees
  • Claims for 80% of furloughed pay not including all relevant pay elements
  • NIC underclaims for employees with topped up wages
  • Incorrect methodology calculated on ‘working days’ rather than ‘calendar days’ leading to underclaims.

In recognition of Payroll’s challenge

There is no doubt that business leaders and payroll teams have done their best to interpret the emerging rules around the CJRS. Payroll professionals have faced the most difficult period in their careers trying to ensure correct compliance with limited information.

Mike Kealey is Managing Director of Vero, the company behind Vero Pay’s outsourced payroll services. He said: “I for one am proud of our payroll team. They have worked so hard during these unprecedented times to support our clients with their furlough claims”.

The additional complexity too of flexible furlough, whilst welcomed by many employers, added to the risk of unintentional errors in calculations. This is one more important reason to review whether claims have been submitted correctly.

Dotting I’s and crossing T’s is better than crossing your fingers

We recommend that employers undertake audits so all is in order should they be subjected to an HMRC audit in the next five years.

When undertaking an internal audit the following tips should be kept in mind:

  • Take a risk-based approach to areas you need to focus on. High risk areas involve employees who operate under salary sacrifice schemes, variable pay schemes or have been on flexible furlough or maternity leave or long-term sick leave etc.
  • Consider if any employees have worked during furlough. They may have undertaken tasks which at the time you did not consider to constitute work, or have worked without your knowledge due to the commitment/diligence of the employee. Options include reviewing email activity, systems access logs, door entry records, phone records and business expenses claimed during furlough to establish if anyone has been working without your consent.
  • Furlough records in particular flexible furlough records. Can you evidence copies of letters and the agreement of employees to furlough? Where flexible furlough has been adopted, do you have records of hours worked available for inspection?
  • Consider using someone independent to undertake your audit.
  • Maintain written records of your audit – this will help you if you receive an HMRC audit in the future

One final thought…

Many organisations understandably took up the CJRS in anticipation of financial impact, but for some, the impact has not been as at first feared. For a fortunate few, financial results have in fact been better than expected.

One major American owned business that has prospered from the crisis has pledged to donate all its above-budget profits to the US treasury.

Some UK employers have also promised to repay some or all of their furlough claims to HMRC. HMRC will be setting up a facility for employers to donate claims legitimately claimed but in hindsight not needed.

If you would like further advice on any of the issues discussed here, then email us at enquiries@verohr.co.uk

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