Susan Ball

Written by: Susan Ball

Susan Ball

Partner

Does HMRC need to change its approach to CJRS compliance?

HMRC told the Public Accounts Committee last year that its working estimate was that between five and 10 per cent of furlough money had been claimed either in error or fraudulently – up to some £7bn. That estimate has now reduced dramatically. HMRC chief Jim Harra recently stated that over the next 18 months the Government now expects to recoup just £2.3bn of Coronavirus Job Retention Scheme (CJRS) money claimed in error. The obvious question is: why so little? After all, HMRC expenditure aimed at recouping money lost to CJRS fraud and error was increased in the March 2021 Budget, with a new “Taxpayer Protection Taskforce”.

This brought with it an investment of 1250 staff members and £100m. This task force represents one of the largest responses to a fraud risk by HMRC.

Interestingly, it was reported HMRC expected to recover £1bn from its work, covering around 30,000 one-to-one enquires, by March 2023. This equates to some 12 cases per officer a year (£35,000 per case) or one per officer per month which doesn’t seem a lot. But we understand that, currently, the average time it takes to complete a case is six months which, in light of the complexity of the rules, is perhaps less surprising than it may seem at first glance.

So, what is the rest of the £2.3bn made up of? In short, this was the HMRC estimate of taxpayers returning unneeded funds and/or voluntary disclosures. So what about the remaining £4-5bn? Government could really do with recovering extra funds to help fill the £42bn tax debt it built up during the pandemic.

It’s regrettable that the decision to recruit this task force was not made when CJRS was first implemented, or even by October 2020 when the scheme was extended. At least these staff would have been recruited and trained by now. This would also have removed the need for HMRC to “rob Peter to pay Paul”, building the task force by pulling in staff from other parts of the Department. This has, of course, had a serious and significant impact on the ability to deliver in other areas of HMRC responsibility.

As a clear and obvious consequence, it appears to many in the profession, and surely must do to HMRC itself, those resources are now stretched far too thinly. This means that taxpayers are receiving a less than satisfactory service from HMRC.

As the huge level of CJRS support is ultimately a cost being met by all taxpayers, don’t we all want to see a return on the investment and for HMRC to recover monies paid out in error, not to mention a reasonable service from HMRC as a whole?

So, is there something HMRC can do to help, other than just throwing huge staff resources at the issue? In short, yes, there is.

If an employer has overclaimed CJRS grant, they must notify HMRC by the latest of the three dates below or risk paying a penalty, and ultimately repay the overclaimed grant:

  • 90 days after the date they received the grant they were not entitled to;
  • 90 days after the date they received the grant that they were no longer entitled to keep because their circumstances had changed; or
  • 20 October 2020.

The question is how? Currently there is no specific disclosure process, and yet a notification to HMRC is required. Most employers will, once they realise a mistake has been made, simply write to HMRC. This of course increases the post HMRC has to deal with. Any overclaims would be returned on a tax return (so that they are taxed at 100 per cent) or by requesting a payment reference. But this presumes taxpayers are clear on all errors made and how to correct them, with no areas of ambiguity.

The scope for mistakes to be made is wide given the complexity of the rules. Thus with over 450 changes to HMRC guidance and seven Treasury Directions, plus the Finance Act, it is increasingly apparent that many employers have made mistakes, either unintentionally or because they were strugglingly to calculate the correct amounts with complex rules that didn’t neatly match payroll calculations. For those with “variable” paid employees this inevitably brought additional stress in what were already very difficult times.

Added to this, at present, it is almost impossible to engage with HMRC on a case or get a reply to a notification under the above requirement unless you are a large business with a Customer Compliance Manager allocated, or you have already been selected for an HMRC review.

An obvious question to ask therefore is “What has happened to fairness in the system?” In the past we have had a disclosure process, with clear guidance to taxpayers. So if HMRC wants employers to come clean in relation to CJRS claims, and report mistakes to try to correct errors, it must make it easier for them to do so and encourage them to review past claims over a reasonable period, with attractive penalty provisions if certain circumstances apply. And would it not be very useful, for all concerned, if HMRC provided clear examples of what errors it is seeing which need correcting?

Equally important, for all of us as taxpayers, if HMRC provided an easier way for employers, whatever their size, to engage with them to agree what needed to be corrected, then surely it will receive more funds over a greater number of cases.

But it does not end there. HMRC now needs to recruit very quickly (in a very challenging labour market) to fill holes left by those moved onto the task force. If it fails to do so, further gaps will appear in HMRC’s ability to recover tax for the Exchequer – and for all of us!

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