The number of fraudulent claims has increased in recent weeks as exploitation of the Coronavirus Job Retention Scheme, also known as the furlough scheme, becomes a new government threat. The purpose of the scheme was to reduce the number of redundancies caused by the coronavirus outbreak by allowing organisations to place staff on furlough – where they do not carry out any work for the organisation – and the organisation received a government grant to cover 80 per cent of their wages up to £2,500.
As a response to this, Chancellor Rishi Sunak is now considering giving tax officials at HMRC powers to hand out harsher punishments to offenders.
Potential punishments being considered
Rule breakers risk breaching legislative provisions on the existing furlough schemes as well as any new developments to the scheme yet to be introduced. The Government may find the following punishments suitable for rule breakers:
- being made an example of to dissuade others from the same or similar offences – it is unclear what this could look like but in the past hefty fines have been sanctioned
- introducing a higher tax band – organisations who fall foul of the rules may be forced to pay a 100 per cent tax rate on furlough payments
- making all organisation’s directors equally liable for fraudulent claims made.
What does furlough fraud look like?
Some organisations who have been caught cheating the rules have done so by:
- forcing employees to work whilst on full furlough – flexible furlough has different rules which allows employees to work part-time, but organisations should not have started implementing this until 1 July 2020
- not informing staff that they have been furloughed
- failing to prove, when asked, why the organisation needed to make a claim under the scheme
Legal rights app, Lawya.com, has found that a little over one in three employees on furlough is currently under pressure to continue working; and 27 per cent out of the 2,000 employees surveyed said they were asked to send and/or respond to emails. 17 per cent said they were asked to make phone calls.
The Government will be cracking down heavily on those who are caught breaking the rules, however it is still unclear what the punishment for this will be.
On the other hand, organisations who have made honest mistakes, HMRC says, will not be unfairly punished and some leniency will be provided to these organisations to correct any such mistakes to ensure they are making accurate claims and following the provision rules.
Organisations should also be aware that they will need to start contributing to furloughed staff wage costs from August.