Opinion

By Ben Hart,

Update: Chancellor Rishi Sunak considers harsher penalties for furlough fraud

The Express reported today that HMRC are to be handed further powers by the government to tackle fraud related to the Coronavirus Job Retention Scheme and other support schemes.

Furlough fraud has been increasing over the last month as more people attempt to take advantage of the payments before the scheme comes to an end, and as a result Chancellor Rishi Sunak is said to be considering more severe punishments against those caught flouting the rules.

Chancellor Sunak is hoping to make an example out of fraudsters while discouraging anyone else from breaking the rules by making companies pay a 100 percent tax rate on the support payments, effectively introducing a higher tax band for the companies implicated, and going after the company directors themselves. Company directors may now be held personally liable for incidents of fraud carried out by the company, as Chancellor Sunak is hoping to “strike fear” into anyone thinking of being “flexible” with the furlough rules.

This comes as groups such as the whistleblowing charity Protect and legal advice app Lawya.com report a number of issues including workers not being told that they had been furloughed by their company, and that over one in three furloughed employees had been asked to work, despite it being against the law for companies to ask its employees to work whilst on furlough.

In a survey of 2000 people, 27 percent had been asked to send and respond to emails and 17 percent asked to make phone calls, despite both these actions counting as paid work and therefore illegal. Workers interviewed expressed fears that, given the current economic climate, if they did not agree to their employers requests then they would be more likely to be made redundant ahead of other staff willing to do such work whilst furloughed.

At the moment, the government is paying 80 percent of furloughed workers salaries, up to an upper limit of £2,500 a month. The furlough scheme, known as the Coronavirus Job Retention Scheme had been used by more than a million employers in the UK, paying out £17.5 billion to 8.7 million workers as of the end of last month (May). This amount of massive public spending is unprecedented so it makes sense that the government would want to ensure that only genuine claimants receive money, and with the huge number of people claiming, it goes without saying that there will be countless instances of fraud as people look to take advantage of this government handout.

Apart from the Coronavirus Job Retention Scheme, the Self-Employment Income Support Scheme is likely to also see a tightening of rules and enforcement, with 2 million SEISS claims worth £6.1 billion having been submitted up until 19 May. Also, according to the government website, the Bounce BackLoan Scheme had seen nearly half a million loans approved worth over £14 billion, while the Coronavirus Business Interruption Loan Scheme had seen over 40,000 loans approved worth over £7 billion, again as of the 19th of last month.

If a business is suspected by HMRC of having applied for a loan without genuinely needing it, HMRC can put the burden of proof on the company to prove otherwise, although HMRC insists that it does not want to unfairly punish companies and genuine mistakes will be met with a degree of leniency, with companies given a chance to make the required corrections without being further penalised. But for those who are deliberately trying to cheat the support schemes, HMRC have vowed to take harsh action.

While it is good that HMRC are willing to accept that not everyone who has broken the rules has done so deliberately, the rigid rules on furlough arrangements have often put companies in a difficult position, with deadlines for new furlough claims meaning some businesses have been forced to put workers on furlough, purely in case they need to do so after the deadline for new claims passes. Perhaps the government would be better off looking to the future, and thinking about how they can best leave companies alone to go on creating wealth, benefiting HMRC in the mid to long term, rather than trying to weed out the inevitable few who managed to grab a few extra quid during a very difficult time.

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