First-tier Tribunal ruling is a wake-up call for employers who claimed CJRS

02 August 2022

An employer has lost its tribunal case challenging HMRC’s clawback of Coronavirus Job Retention Scheme (CJRS) support payments. Carlick Contract Furniture Limited’s First-tier Tribunal appeal was dismissed as the company failed to complete a real time information (RTI) submission that included the employees in question before the qualifying date. The ruling serves as a warning to other employers that the rules around CJRS clawbacks are being applied to the letter, with no room for interpretation or consideration of the circumstances.

During the pandemic 11.7 million employees, representing over a quarter of the UK workforce, were furloughed under the CJRS, at a cost of approximately £70bn. Now, HMRC’s Taxpayer Protection Taskforce has been clawing back funds incorrectly claimed due to fraud or error.

The first reported tribunal decision relating to HMRC’s attempted recovery of incorrect coronavirus pandemic support payments gives no comfort to employers that may have found claiming under the CJRS less than straightforward.

The CJRS scheme initially contained provisions designed to ensure it only applied to employees who were taken on before the emergency started, specifically those for whom an RTI submission had been made by 19 March 2020. Under these rules, HMRC can now claw back any payments made in respect of employees who did not satisfy all the relevant conditions.

In Carlick’s case, the employees concerned started employment in February 2020, but their commencement date was too late for them to be included in the February payroll. This meant that they were first included in a payroll run in late March 2020 – ie after 19 March, at which time they were paid their wages for February as well as March 2020.

HMRC argued that this meant that all the payments to the relevant employees did not count as ‘qualifying costs’ under the CJRS and issued an assessment relating to claims in respect of those employees for the period to 31 October 2020. The company argued that the claims were in line with the ‘spirit’ of the CJRS and it would be unreasonable to exclude them on a technicality such as the timing of a payroll run.

However, the tribunal was bound by clear legislation and had no scope to determine whether the outcome of applying it was fair or not. So, as the employees had not been included within an RTI notification to HMRC on or before the relevant date of 19 March 2020, the tribunal determined that the CJRS claims were invalid and the company’s appeal was dismissed. It is being within the letter of the law, not the spirit, that counts in the judicial system, even where, as in the case of these CJRS claims, the employees claimed for were in fact employed before 19 March 2020.

This case is therefore a wake-up call for any businesses that either thought HMRC’s enforcement activity was focussed on fraudsters, or that haven’t yet reviewed their CJRS claims. It should be seen as a reminder to employers to check and put right any errors, even at this late stage. With seven treasury directions and more than 400 changes to the HMRC guidance on CJRS, it is not surprising some employers made mistakes and/or felt they had claimed within the spirit of the scheme, but later realise they made an error.

What perhaps could be seen as unfair is that larger employers had direct access to HMRC via HMRC customer compliance managers to clarify issues relating to CJRS claims as they were going along. Other employers didn’t have this luxury, having to rely on trying to keep on top of the rules themselves, engaging only occasionally with HMRC, often via webchat, or having to pay an adviser.

HMRC’s difference in approach to larger and smaller businesses also seems to be reflected in the compliance activity being undertaken, in that the experience of larger employers seems to be different from that of smaller ones and can also depend on which HMRC officer is involved and how much detailed knowledge they have of the CJRS rules. That said, an error such as Carlick’s is likely to receive a consistent response from HMRC and be easy for it to spot.

What this shows is that ensuring claims are in line with the legislation is critical, as HMRC can recover the amounts overclaimed plus penalties. Employers should also remember that they need to keep all records relating to CJRS claims for six years, which is longer than payroll records normally need to be retained, and that HMRC’s CJRS compliance activity will be ongoing for some years to come.