The risk to Coronavirus Job Retention Scheme penalties

The Coronavirus Job Retention Scheme (CJRS) closed in September 2021, but there are still actions employers might consider to ensure that they are compliant with scheme rules and avoid penalties.

It’s estimated that anywhere between £3.5bn and £7bn was incorrectly claimed under the CJRS, so back in the March 2021 Budget the Chancellor announced a £100m investment in a dedicated team within HMRC to review CJRS claims.

HMRC has said that, while it is looking at fraud cases, it will also look to enforce its CJRS guidance to maintain its integrity. This could catch out businesses who took short cuts when calculating their entitlements, misunderstood the guidance, or didn’t keep up to date as the guidance changed.

HMRC has been working with its CJRS stakeholder group to both raise awareness of errors that need correcting, and to updated the guidance on making corrections.

What needs to be considered?

It is important to note that employers are required to repay HMRC any amounts they overclaimed. Penalties may apply if the repayments are not made within the timescales specified by HMRC.

The two most common ways for an overclaim to arise are when:

1. the method of calculation used by an employer to arrive at the wages, employer NIC or pension contributions claimed is not in line with the scheme rules, resulting in differences between the claimable amount and the amount actually claimed; or
2. an employee has not received 80 per cent of their ‘usual pay’, as defined and required by the scheme rules (ie they have been underpaid). The entirety of the claim for that employee for the claim period in which this requirement was not met becomes ineligible, and HMRC therefore considers it an overclaim.

Both of the above might easily be overlooked, especially if the employer has not taken steps to review the claims made. Significant liabilities can arise, especially for employers who applied the scheme to multiple employees. Therefore, as a key first step, we would suggest that employers review the calculations they used to arrive at their claim amounts.

What steps might be needed and the timescales for correcting?

1. Review how claims were calculated

It’s advisable to compare the calculations used against HMRC’s own guidance and examples. This will help to identify any under or over-claims but professional assistance with this review is recommended, given the complexity of the scheme’s rules and the numerous times they were updated.

2. Review amounts paid to employees (furlough pay)

Where an underclaim is established, it follows that employees are also likely to have been underpaid. HMRC could therefore treat the full sum claimed as an overclaim, unless employees are given a top-up payment to ensure the amount they receive is equal to 80 per cent of their usual pay. 

3. Top-ups for underpayments

Where an employer has not paid its employees enough, HMRC asks that top-up wages be paid within a reasonable period. This period is usually no later than:

• 31 January following the tax year in which the grant claims were received, for employers who are sole traders/self-employed.
• 12 months after the end of the relevant accounting period for companies that file a corporation tax return.

But HMRC can agree extensions.

4. Reporting overclaims via tax returns

Employers are required to complete certain fields noting the CJRS grants received, the employer’s entitlement to those grants, and details of any overclaims repaid or previously disclosed to HMRC. Consideration should therefore be given to any returns submitted.

5. Notifying HMRC of overclaims

Where an overclaim has been made, a notification should be by the latest of:

• 90 days from the date of receiving the amounts overclaimed;
• 90 days from the date of a change of circumstances that led to the employer no longer being entitled to the claim; or
• 20 October 2020.

As this date will often have been missed, employers should make a disclosure to HMRC as soon as possible.

What are the consequences of failing these steps?

Where the notification of an overclaim (point 5 above) has not been made in time, HMRC could seek to apply penalties, as well as reclaim any overclaimed amounts. Actions taken by employers when they discover an error, including how quickly they disclose it and repay overclaimed amounts, can impact the penalty position.

The penalty applied will be a percentage of the ‘potential lost revenue’ (ie the amounts overclaimed), where the given percentage is determined based on the employer’s behaviour – taking into account:

• whether the employee was entitled to receive the wages at the time of the claim;
• whether a notification was made to HMRC in time (and if not, whether the employer had a reasonable excuse);
• whether the failure to notify was brought to HMRC’s attention by the employer voluntarily or only after prompting from HMRC;
• the timeframe within which amounts were repaid to HMRC; and
• the level of assistance an employer provides in helping HMRC to arrive at the correct position, in terms of ‘telling, helping and giving access to records’.

Based on our conversations with businesses and clients, it seems many employers may not have become aware of the error until after the timeframes specified by HMRC, and they could now be exposed to penalties.

Given that employer behaviour is central to the penalty charge that will be applied by HMRC, we recommend that all employers begin reviewing their claims (if they haven’t already) and, where errors are identified, endeavour to mitigate the potential penalties that might be applied by HMRC.

If you have any queries or would like to discuss any of the above areas further, please contact Susan Ball, Carolyn Brown or Paul Marcroft.