Fieldfisher's market leading tax disputes and investigations team examines how HMRC may seek to recoup payments made under the Coronavirus Job Retention Scheme and what businesses should do to ensure compliance.
The Coronavirus Job Retention Scheme (the "CJRS") is unique. This is both in terms of the financial scale of the benefit and the brevity of the regulatory framework. It has been reported that HMRC has redeployed 9,500 staff to administer the CJRS. On its first day of operation, applications were received from over 140,000 employers, in respect of over 1 million jobs. It is currently anticipated that in excess of £40 billion will be paid.
Given the extraordinary circumstances, the Government's focus has been on speed, rather than detail. The CJRS's legislative basis is s.76, Coronavirus Act 2020, which provides simply:
"Her Majesty's Revenue and Customs are to have such function as the Treasury may direct in relation to coronavirus or coronavirus disease"
The latest guidance on the CJRS is: here. Unfortunately ambiguities and uncertainties arise from the guidance.
Pay first, check later
In order to meet the policy goal of speed, a "pay first, check later" approach applies. Given the ambiguities in the guidance, the vast sums of monies that may be paid and the significant difficulties that many businesses are facing, it is all but inevitable that, in due course, the Government will be seeking to recoup monies on the basis that the payments breached CJRS.
It is stated in HMRC's guidance:
"Payments may … need to be repaid in full to HMRC if the claim is based on dishonest or inaccurate information or found to be fraudulent. Dishonest or deliberately fraudulent claims put our essential public services and the protection of livelihoods at risk during these challenging times."
To date, it has not been explained how "check later" will be operated; the only known is that CJRS recoveries will be the responsibility of HMRC. We are in the process of seeking clarification from the Government regarding this matter. Pending clarification, we have made 2 assumptions:
HMRC's general practices and administrative rules will be applied.
It is likely that a legislative framework will be introduced, with retrospective application and it is likely that the First-tier Tribunal, Tax Chamber ("FTT") will be tasked with resolving CJRS disputes. HMRC is familiar with its procedures and it is relatively informal in comparison to the higher courts. If no system is introduced, the fall back position would be requiring employers to bring Judicial Review proceedings against HMRC. That would be unworkable in our opinion.
What about penalties?
The penalty regime is designed to correct taxpayer behaviours. The percentages vary according to whether the taxpayer 'comes clean' when issues are discovered (known as an "unprompted" disclosure) and whether the conduct was either "deliberate" (meaning fraudulent) or "careless" (akin to negligent). The level of taxpayer co-operation with HMRC determines whether the 'maximum' or 'minimum' penalties are due.
The penalty regime can be summarised as follows:
|Type of disclosure||Penalty||Careless||Deliberate||Deliberate and concealed|
We consider that this regime will be extended to the CJRS.
Preparing for the unknown
Notwithstanding the unknowns, there are some simple steps that businesses can take to avoid disputes with HMRC regarding recoupment of CJRS payments and to protect themselves in the event of a CJRS enquiry.
Here are our top tips:
Keep up to date with and follow the latest HMRC and Government guidance.
Keep records. All stages of CJRS implementation and monitoring should be carefully recorded. All furlough agreements (or written documentation designating individuals as furloughed, if the employer has opted not to use a formal agreement) must be retained for a minimum of 5 years.
Undertake audits and check for CJRS compliance. The CJRS portal opened on 20 April 2020; businesses faced with a month end payroll and a need to use the scheme had to ensure that they submitted swiftly. Inevitably, some errors will have been made. These submissions should be reviewed. If errors are discovered, correct them, and ensure that the error is not repeated for May 2020. Notify HMRC promptly of any inadvertent errors.
How we can help
It is a defence to HMRC penalties to show that you took 'reasonable care'. Involving legal advisers in any audit process is the 'gold standard'. It will allow businesses to demonstrate the highest level of CJRS compliance.
Although the CJRS guidance that has been published recently provides substantially more detail than previous commentary, there remain ambiguities and areas of uncertainty. Most businesses will face unique challenges requiring expert support. We are working with many businesses, across various sectors, who are looking at whether or not they can, and should, take advantage of the CJRS as part of a series of protective measures.
Please call or email any member of the team, who will be able to provide further information on the CJRS and our CJRS Audit.
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