In the aftermath of the Covid-19 pandemic, Parliament’s Public Accounts Committee report on HMRC’s administration of the various employment support schemes was critical of the department’s perceived failure to properly police them, including the Coronavirus Job Retention Scheme (CJRS), not least because of the early closure of its Taxpayer Protection Taskforce.
The report was published this spring and recommended that HMRC “should continue compliance work on the Covid-19 employment support schemes while it remains cost-effective to do so” and report annually on its success on recovering funds claimed in error/fraudulently.
Many expect these recommendations to lead to more rounds of enquiries launched by HMRC into CJRS claims. Logic would dictate that such enquiries are likely to be targeted on a risk basis, so that the higher the amounts of CJRS reported on the claimant’s CT600 with the greater the risk of enquiry, but that is not necessarily what we are seeing in practice.
Enquiries
Although the CJRS closed on 30 September 2021, CJRS claims had to be reported on the Corporation Tax or partnership tax returns. Therefore, HMRC’s normal four-year time limit for raising an enquiry is linked to the tax return cycle – so there is plenty of time yet for employers to face difficult questions on their CJRS claims.
As employers were required to disclose both the amounts claimed and the amounts they consider they were entitled to claim, HMRC has a ready source of data to review against RTI records to check for discrepancies.
Furthermore, HMRC does not operate on a ‘materiality’ basis. Therefore, while the CJRS claims may have been reviewed as part of an organisation’s audit, unless material issues were identified no further action may have been taken at that point. Unfortunately, HMRC is likely to be more concerned about the nature of any mistake made, eg was it careless or deliberate, rather than the size of the error, so an audit is likely to provide only limited defence in the case of an HMRC enquiry.
Learnings from CJRS court cases
Of course, these are not the first CJRS enquiries HMRC have opened; there have been a number of tribunal cases concerning CJRS.
The key themes noted from these cases are that legislation is king, even where the guidance which usually preceded it conflicted with the legislation. This is perhaps harsh given the rapid and sometimes chaotic way that the CJRS guidance evolved during the pandemic, but tribunal rulings make clear that where legislation subsequently overruled the guidance, claims based on the superseded guidance should have been adjusted.
HMRC did make mechanisms available to report and make adjustments to payments – either within 90 days or in the relevant tax return. While these mechanisms were available, HMRC said it would not be investigating innocent errors, but as an example from a recent case involving a director on furlough posting on social media – which HMRC challenged as working – it appears the previous assurances are no longer valid and it appears employers have no excuse (and no sympathy from HMRC) if these opportunities were not taken.
Another theme is that accurate record keeping was essential, for example, being able to prove an employee was being paid via a payroll and included on RTI returns on or before 19 March 2020.
Where HMRC identifies overclaimed amounts, they carry an effective penalty of 100%. Where the total overclaim exceeds £25,000, HMRC has the power to publicly name the employer as having overclaimed CJRS. However, the cases heard so far show HMRC is not confining its enquiries to such claims and have been willing to take to tribunal cases well below the £25,000 level.
HMRC will always select cases where it has a high likelihood of winning: so far, it has had success in all the cases that have reached tribunal. The side effect of this is that some incorrect claims for relatively small amounts have brought names of claimants into the public arena.
In the hectic days of the pandemic and in the face of ever-changing guidance, some employers took a prudent and conservative approach to calculating their claims to avoid overclaiming. Unfortunately, if you didn’t review and double check your claims once the legislation became clear, problems could still arise: making an error in your claim, even an underclaim overall for the period, means the whole claim for that employee for that month is invalid, not just the difference. This leaves even those who took a safety-first approach of forfeiting a larger amount than if an overclaim had been made in the first place.
Action points
HMRC reviews are costly, can be time consuming and may result in adverse publicity. So, where an organisation has not yet had an external review of their CJRS claims it will be prudent to do so now to demonstrate that they have taken a careful approach to their compliance – and it will give them a chance to put right any deficiencies that are identified before HMRC comes calling.
Rob Woodward is an associate director in BDO’s global employer services team
