01 October 2022
Last week saw three reports on the COVID-19 financial support schemes issued and they make interesting reading. In these reports HMRC has confirmed that the two-year investment of over £100 million in the Taxpayer Protection Taskforce (TPT) to combat fraud in the COVID-19 financial support schemes administered by HMRC (Coronavirus Job Retention Scheme (CJRS), Self-Employed Income Support Scheme and Eat Out to Help Out) is to end as planned. With the TPT winding down from March 2023, after which compliance activity will move to business as usual by September 2023, is HMRC’s job really done?
Post-payment compliance activity began in July 2020. Up to the end of March 2022, HMRC’s compliance activity recovered more than £762 million lost to error and fraud in the COVID-19 financial support schemes. Across the full two-year lifecycle of the three schemes (covering 2020/21 and 2021/22), HMRC estimate the total value of error and fraud to be approximately £4.5bn, which is less than the figure previously published. This shows that less than 20% of the expected estimated error and fraud figure has yet to be recovered by HMRC, leaving a long tail of compliance work to be completed over the coming months and years.
Employers who claimed CJRS funds should carefully read the statement about HMRC’s focus being on underpayment of grants by employers to their employees. Employers who failed to include all allowable pay elements in their reference salary-based claim calculation will have underclaimed, meaning that they will not have paid the staff the requisite 80% of reference salary, even if all claimed funds were remitted to their staff. As a result, assuming corrective payments have not been made, those grant monies are all at risk.
At the same time the National Audit Office (NAO) issued a report which said that the need to design the schemes at speed led to some flaws and significant levels of fraud and error. It also commented that several billion pounds were distributed to taxpayers whose incomes were not significantly affected by the pandemic.
This was reflected in an HMRC survey of employers that found that 15% of companies receiving CJRS experienced no reduction in turnover during the first six months of the scheme, although a large majority of these firms said that, without the scheme, they would have made redundancies or closed.
Firms who said they would not have made redundancies or closed permanently and saw their incomes stay the same or increase as a result of the pandemic still claimed. Yet HMRC compliance activity does not include checking if an employer was adversely impacted by COVID-19, which, as stated in each of the Treasury Directions allowing for the scheme, was integral to the purpose of CJRS and therefore for claims to be valid. At a time when government is under pressure to recover as much as possible, due to the significant funds paid out, it is somewhat surprising.
The NAO also found that HMRC’s estimate of CJRS fraud is based on limited data and could well be incorrect; recommending that HMRC works with the Cabinet Office and government’s counter-fraud functions to improve the data and its methodology for estimating fraud and error.
With further research finding that CJRS Users and Agents expressed high levels of satisfaction with information from HMRC about the scheme (89% of Users and 87% Agents were satisfied with both the timeliness and clarity of information). That does make one wonder, if the CJRS was so easy to use and enquire about, why was there so much error and fraud? Either the 450 plus changes of HMRC’s CJRS guidance caused confusion and did not make it a scheme with high levels of correct claims and compliance, or fraud was rife. It does appear that HMRC is still some way off collecting the vast majority of lost furlough funds.
It must also be very disappointing that, even though HMRC suspect that over £1.5bn was claimed by those who did not need the funds, apparently no action is to be taken despite these claimants being known to HMRC. Why doesn’t HMRC get much closer to completing the job by improving the facilities for those who want to discuss mistakes, make corrections and recover from all those who claimed funds where the qualifying criteria were not met? No wonder these mixed messages are resulting in criticism and difficulties.