Furlough fraud is the exploitation of the government’s Coronavirus Job Retention Scheme (CJRS), which has seen thousands of reports recently. Furlough was established by the Chancellor Rishi Sunak in March to help Britons who may have otherwise lost their positions of employment because of lockdown measures intended to stop the spread of COVID-19. The scheme involves the government currently covering 80 percent of an employee’s salary up to £2,500, to allow them to be retained by their employer, without undertaking work.
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However, there have unfortunately been instances reported of Britons being forced to work while on furlough, or failing to be informed they have been placed on the scheme, until they receive a reduced pay check.
While HMRC has stated it will be cracking down on these instances, the government has said it will offer a reprieve.
Current legislation states companies have 30 days to tell HMRC if they have knowingly, or mistakenly, committed furlough fraud.
But draft legislation from the government has suggested this will be increased to a 90 day window.
The three month grace period will give companies a longer opportunity to get their affairs in order, and correct any errors.
This draft bill would also provide HMRC with additional powers to check all coronavirus-related grants.
As the schemes have cost the taxpayer millions, it is expected HMRC will be particularly harsh with those who persist in furlough fraud after the designated time window.
As of May 29, HMRC received 1,868 reports of fraudulent use of the CJRS by companies across the UK.
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This was an increase from the 795 received as of May 12.
The Revenue previously stated it would be cracking down on instances of furlough fraud through a series of measures.
Included is the imposition of harsh penalties on company directors who had awareness of the fraud being committed.
However, it did pledge leniency for those who had made genuine mistakes, stating it was “not trying to catch out” those making a claim.
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Fines would only be given in the most serious of circumstances.
A HMRC spokesperson told FTAdviser: “This provision would only be used in the most egregious cases, where amounts are deliberately per-claimed with the officer’s knowledge, and where the company is insolvent, or in serious risk of insolvency and there is a serious possibility it will not pay the tax liability.”
However, with companies asked to take on more furloughing costs in the coming months, there are fears that either the scheme could be increasingly exploited, or that redundancies will rise.
The Institute of Directors (IoD) has said a quarter of its members using the government’s scheme could go bust if they are forced to make any contributions at all to furlough.
Jonathan Geldart, the director-general of the IoD said: “Business leaders know that the government’s support can’t be infinite.
“But the ugly truth is that if there’s no money coming in the door, many firms will be forced to make difficult decisions come August.
“The government must soften the blow by introducing as much flexibility as possible into the furlough system. The more flexible the scheme is, the better firms can recover, and the fewer jobs will rely on state subsidy.
“Being able to bring people back part-time will help a lot of companies, but there are other changes business leaders would like to see, such as reducing the minimum furlough period.”
Employees who have seen their employer potentially exploiting the scheme have been encouraged to use HMRC’s dedicated fraud service to report these instances.
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