What furlough fraud might involve and HMRC’s approach to tackling it

furlough fraud lawyer

So as everyone knows by now that the scheme is coming to an end in September, furlough pays 80% of the wages of workers placed on leave since March up to a maximum of 2,500 pounds per month. And now we’re in the situation where thousands of businesses are under investigation for either falsely or mistakingly claiming. 

The potential scale of furlough fraud

The scale we’re looking at is in the region of 3.5 billion in payments that have been claimed. Fortunately, this is a huge amount of money. Since the beginning of September, HMRC told NPS, who sits on the public accounts committee, estimates that five to 10% of furlough cash has been wrongly awarded. That’s a huge amount of money. This five to 10% ranges from deliberate fraud all the way through to error. 

At the point that HMRC gave this evidence, about 8,000 calls have been received to their fraud telephone hotline. And they were looking into 27,000 high-risk cases where they believe there has been a serious error made in the amount employers had claimed this number has probably increased because we’re talking about months on from that.

It’s not really that surprising given the speed with which the scheme was rolled out and to provide a much-needed lifeline as quickly as possible when the lockdown began. That kind of sudden introduction made it very vulnerable to both mistakes and scams.

What types of fraud HMRC are looking at

There are four main areas of conduct that might amount to furlough fraud. So the first is creating ghost workers or claiming for staff who’ve actually left the business.

Secondly, claiming whilst individuals were actually working as normal on a part-time basis or as volunteers. Thirdly, there’s making backdated claims to include the time when individuals were actually working. Finally, there’s the example of asking staff to take a pay cut beyond 80% whilst still claiming the maximum furlough grant.

Research conducted by a legal rights lawyer estimates 36% of employees on furlough were under pressure from their employer to continue working for them. Out of 2000 furloughed employees interviewed, 27% were asked by employers to send and respond to emails. Employers asked 17% to make phone calls. 12% were pressured to attend their physical workplace, and 11% to volunteer their time. 

What HMRC’s approach to furlough fraud

There’s actually been an interesting statement made by HMRC permanent secretary. Who’s Jim Hauer. Their risk assessment stated they would not try to find employees who have made legitimate mistakes in compiling their claims because this is obviously something new that everybody had to get to grips with within a challenging time.

Employees are expected to check their claims and repay any excess amounts. What they will be focusing on is tackling abuse. They’re not looking at mistakes; they are going to be focusing on fraud. And in that vein, HMRC has promised to crack down, and we have already seen some pretty high profile arrests.

High profile furlough fraud arrests

In July, for an amount of just under half a million pounds, furlough fraud, there was an arrest, and in September, two London-based directors were arrested for 70,000 pounds worth of furlough fraud. So HMRC is already taking action. If you are found guilty of making fraudulent applications, the individuals involved can face tough criminal sanctions, including a fine and a potential criminal custodial sentence.

Now, if you’re looking at an offence under the fraud act, that criminal penalty term could be up to 10 years. So a very long term there. HMRC has information on inspection powers meaning that they can perform spot checks and compel information disclosure. And also another comment made by Jim Hara is that HMRC will be writing to employers to give them the chance to correct a mistake and repay excess amounts before taking more drastic action.

Whilst HMRC can’t get involved in any relationships between employers and employees; they can and will reclaim any grants that the employer is not entitled to. Including, for example, grants that haven’t been passed on in wages to employees.