“How will HMRC know?”
This was a question I was asked this week by a friend who runs a business. He is not a client, but often picks my brains. Patrick (not his real name) had submitted his own Coronavirus Job Retention Scheme claim for three of his furloughed staff and had realised he’d made a mistake on the calculation.
My immediate response was that he would have to correct the error. HMRC will shortly have a system for notifying errors made on JRS claims. We don’t know the detail, but it will likely mean that the business has to make a separate repayment of the overclaimed amount, rather than netting off the amount against a future claim.
“You’re an accountant, so I knew you’d say that!” laughed Patrick. “But how will HMRC know I’ve made an error? It’s only small. Can’t I just forget about it?”
With 1.1 million businesses in the UK having submitted JRS claims as at May 31st (covering 8.7 million workers) I could forgive Patrick for assuming HMRC wouldn’t take up the needle-in-a-haystack challenge.
However – here is my own take on why Patrick (and others like him) can’t forget about his error.
- HMRC can retrospectively audit CJRS claims for up to five years after it has been made. Once the furlough scheme has ended in October this year, thousands of HMRC staff will be freed up. A large number will be focusing on CJRS audits
- The most common error (claiming employers national insurance relief when the Employment Allowance has also been claimed) will be able to be spotted by HMRC before the end of the 20/21 tax year
- Unfortunately, some businesses will have made CJRS fraudulent claims. Already, two thousand businesses have been reported to HMRC for fraudulent claims, which will be investigated
- At my own firm, we spent a total of 60 hours between 4 people reviewing the CJRS scheme guidance (which has changed multiple times). It is not straightforward, even if submitting a claim doesn’t require an accounting degree. We have developed detailed spreadsheets which stress test all of the rules to ensure a correct claim number is calculated. This ensures that if any of our own client claims are ever audited, we have chapter and verse detail on the claim numbers. With no disrespect to business owners who have made their own CJRS claims – they may have made innocent errors by not understanding the finer details of how Pro-rata salaries, Employers NIC and pension contributions are calculated
- HMRC have already published a draft 2020 Finance Bill which explains the new powers they will have to recover money paid out incorrectly on CJRS claims
- The legislation will give HMRC the power to raise tax assessments on anyone who receives a furlough claim to which they were not entitled. Penalties will be levied on those companies who have deliberately made a false claim. Individual directors can be made liable for their company’s claim errors
There are many more reasons why CJRS mistakes should be corrected. Perhaps the biggest one of all is the ethical and moral one. The UK will only be able to add up the bill for the Covid19 crisis once the worst is over. Tens of billions will have been paid out, and this money will have to be paid back by current and future generations. Making a voluntary repayment where CJRS claims have been incorrectly calculated will go a little way towards shoring up the UK’s finances.
PS. Patrick will be correcting his error as soon as HMRC issue guidance on how to do that. That’s the right attitude, Patrick!