Mr Elliott was a Geographical Information Systems Manager for Dorset County Council for more than 34 years. His new line manager brought disciplinary proceedings against him. During those proceedings, Mr...
Ailing businesses committing furlough scheme fraud face HMRC scrutiny
The Coronavirus Job Retention Scheme (“CJRS”) has come to the aid of many businesses throughout the pandemic with four in every ten employers accessing support through it and one in six of all UK workers being placed on furlough at some point since last March. However, whilst the vast majority of applications to the CJRS are legitimate, the scheme has been target for fraudulent claims.
To help prevent such abuse of the system, the Finance Act 2020 empowered HMRC to investigate and claim back funds falsely obtained by employers, with penalties imposed on the guilty parties if necessary. The measures also allow HMRC to get tough on insolvent companies or those under serious threat of insolvency who make claims for CJRS assistance.
For any business facing financial distress and considering a CJRS application, it’s important to make sure that it will be in a position to make repayments when the time comes in order to avoid investigation by HMRC.
Those responsible for managing businesses are required to pay back CJRS monies over time and any who find themselves unable to make the necessary repayments can be held jointly and severally liable. The buck stops not only with Directors and senior managers but potentially with shareholders and other officials, and HMRC may seek reimbursement from individuals where the company doesn’t hold sufficient assets to cover the debt. Criminal proceedings may also be brought against individuals who have acted fraudulently and Directors could be held culpable for breach of their statutory duties and disqualification under the Company Directors Disqualification Act 1986.
Given the severity of the economic impact of the pandemic, the number of businesses facing financial difficulties has increased significantly during the last year, many of whom have claimed support through the CJRS. Consequently, some of those in the greatest financial peril may be receiving a stay of execution by virtue of the government’s aid package. Therefore, as the CJRS is set to end in September 2021, further HMRC investigations against Directors and other individuals may follow, particularly as recent decisions made by those controlling ailing businesses face greater scrutiny after entering into an insolvency process.
Claims and investigations can include those triggered by insolvency practitioners in light of any breaches, regulatory investigations, and claims by pension trustees or the Pensions Regulator.
For any businesses that are going through the administration process, the CJRS should only be used when employees are likely to be transferred elsewhere or the intention is to sell the business as a going concern. However, please be aware that furlough cannot be used once a business has entered the insolvency process.
In summary, if your company has utilised the CJRS during the pandemic it is critical that you are aware of the true financial standing of the business now more than ever, especially as a Director or Shareholder. With the most up to date company record information you will be able in the best position possible to consider whether the company has used the CJRS correctly to avoid questions around fraudulent claims and equally whether the required funds for repayment are available.
If you have any questions regarding this or any other corporate or insolvency related matter, please do not hesitate to contact a member of the team.