The Increasing Presence of Furlough Fraud

Whenever any financial incentive or support is made available, scammers and fraudsters try their best to infiltrate the scheme and cheat the system in order to receive funds designed only for those in need of them. The Coronavirus Job Retention Scheme (CJRS) or ‘Furlough Scheme’ is no exception.

The Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers. It is designed to support employers whose operations have been severely affected by coronavirus (COVID-19).

To be eligible, the employer in a business of more than one employee must have:

  • created and started a PAYE payroll scheme on or before 19 March 2020,
  • and provided the employee was employed before 19 March 2020,
  • have a UK bank account.

What is classed as furlough fraud?

Furlough fraud can be divided into 2 categories:

  • Asking a furloughed member of staff to return to work as a ‘volunteer’ (without pay)
  • Furloughing staff and allowing them to work as normal.

Further examples of furlough fraud are:

  • Employers making backdated claims that include periods in which the employee was working.
  • Not paying the full amount received from HMRC to the employee.
  • Employers pretending to hire staff shortly prior to the qualifying period to take advantage of the payments.
  • Furloughing staff and not paying them what they are owed under the scheme.

CJRS Guidance issued by HMRC asserts that claims will be checked, and any claims where money has been paid out will still need to be repaid, if the claim is found to be fraudulent or is based on inaccurate information.

Furthermore, the guidance also outlines that HMRC audit all aspects of any claim under the scheme. It is expected that audits into furlough payments will be carried out for will be carried out for years to come.   

Is furlough fraud a criminal offence?

There is no specific offence of furlough fraud. It amounts to a fraud upon the Revenue or may be framed as a straightforward fraudulent misrepresentation. The likely offences and guideline penalties are:-

  • Conspiracy to defraud; a common law offence – Maximum: 10 years’ custody. Sentencing range: Low level community order – 8 years’ custody.
  • Fraud Act 2006 (section 1) statutory offence – Maximum: 10 years’ custody. Sentencing range: Low level community order – 8 years’ custody.
  • Cheat the public revenue; a common law offence – Maximum: Life imprisonment. Sentencing range: 3 – 17 years’ custody.

The cost of the government’s furlough scheme has now passed the £25 billion mark. Although the investigation process is unlikely to have a macroeconomic impact, the recovery of the benefit, together with the associated penalty and perhaps even a criminal investigation could have devastating consequences for many businesses.

Finance Bill 2020

Part of clause 19 in the draft Finance Bill 2020 ensures that HMRC has appropriate, and proportionate, compliance and enforcement powers in relation to the furlough scheme and the self-employment income support scheme. To ensure that taxpayer money is going only to those who are eligible, the new clause gives HMRC powers to recover overpayments and to impose penalties where ​there is deliberate non-compliance. HMRC has given a clear undertaking that these powers will not be used to penalise taxpayers who may be going through difficult times, but who make honest mistakes in their applications.

Under a draft bill going through parliament, employers that have either knowingly misused the furlough scheme, or think they may have accidentally done so, will be given a 90-day window to admit their mistake to the government – up from 30 days in a previous draft of the bill.

The new draft legislation will also extend HMRC’s powers to check that any coronavirus-related grants made to employees have been used correctly – in the case of the furlough scheme, to pay workers’ wages – and to ensure employers have not been overpaid in any form of reimbursement.