What is furlough fraud and what happens if operators commit it?

15-Sep-2020 - Last updated on 15-Sep-2020 at 09:59 GMT

Court case: HMRC has civil and criminal powers to prosecute those who are found to commit furlough fraud (image credit: Unsplash/Tingey Injury Law Firm)

The Morning Advertiser takes a look at what furlough fraud is and the consequences of employers committing it.

HMRC officers have arrested a number of people who are suspected for committing Coronavirus Job Retention Scheme (CJRS or commonly known as ‘furlough’) fraud since the initiative was announced amid the pandemic.

One of these was in July where a West Midlands man was arrested as part of an HMRC investigation into a suspected £495,000 furlough fraud.

He was arrested on suspicion of cheating the public revenue, fraud by false representation, VAT evasion and money laundering.

Flexible furlough

The scheme was originally devised for businesses to furlough employees with the Government paying cash grants of 80% of their wages up to a maximum monthly pay of £2,500, was originally open for three months and backdated from 1 March until the end of May. However, the Government then announced a month-long extension in April.

Chancellor of the Exchequer Rishi Sunak said the Coronavirus Job Retention Scheme (CJRS) in that current guise would close to new entrants at the end of June.

He revealed the contributions for furlough would start in August with employers being asked to pay national insurance and pension contributions.

This month (September), they will pay 10% of furloughed employees’ wages while taxpayers will make up 70% and, in October, employers will contribute 20% and taxpayers 60%.

Employer responsibility

He went on to outline the introduction of the new flexible furlough scheme that will replace the current initiative from next month (1 July).

HMRC gave the following examples to The Morning Advertiser as ways furlough fraud could be committed:

An employer who claims on the scheme and does not pass on the money to the employee
Employees working more than what is recorded with HMRC. For example, an employer records to HMRC an employee is on flexible furlough, working two days a week and furloughed for three days. However, if the employee is actually working for five days a week, this is furlough fraud.

HMRC confirmed to The Morning Advertiser the responsibility is on the onus of the employer as they claim the furlough grant and make the application on behalf of employees.

It does have powers, which were awarded in the Finance Bill 2020-21, to claw back any fraudulent furlough money.

However, HMRC did stress that it appreciates mistakes happen and when this is the case, it will help them put things right.

But where there is deliberate fraud, it has civil and criminal powers to follow up