Case study: Furlough overpayments

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After HMRC wins a case over £20,000 of furlough overpayments, could this be a cause for concern for some employers?

A furniture company has lost its appeal at tribunal against an assessment for over £20,000 relating to payments received for two employees under the Coronavirus Job Retention Scheme (CJRS). The case demonstrates HMRC’s firm approach to CJRS compliance.

The case centres around two employees who were hired during February 2020, but due to the company’s payroll cut off for February, were not paid their first payment of earnings from the company until March 2020. At this point, the amounts owed for February (from the start of their employment to the end of February) were paid in addition to their March salaries. The company’s pay day is the 26thof the month.

At the time that both employees were hired, the scale and impact of the pandemic was not yet clear and there had been no talk of the CJRS or furlough leave, both of which were announced on 19March 2020.

CJRS criteria

Once announced, the CJRS was to provide support for any employee that met certain qualifying criteria. The criteria was that an Employee had to be employed on 19March 2020 and a Real Time Information (RTI) submission must have been submitted to HMRC prior to that date.

Both employees were placed on furlough leave from April 2020 to October 2020 and the company submitted claims for both employees under the CJRS throughout this period. With continually changing and developing guidance and legislation at the inception of the CJRS, the company had failed to adhere to the qualifying criteria which required an RTI submission to have been submitted prior to 19March2020 and instead assumed both would be eligible for support as in their view, it was clear that the intent of the CJRS scheme was to support employees in their situations. 

In late 2020, HMRC contacted the company and assessed that neither employee was eligible for support under the CJRS and sought to recover the amounts, over £20,000, paid to the company in respect of them. The company disputed HMRC’s decision.

Throughout their correspondence with HMRC, the company argued that they had acted reasonably in including both employees in their CJRS claims and that, even if an RTI submission had not been submitted by 19 March 2020, it was clearly the intent of the CJRS to provide employees in their circumstances (hired well before the start of lockdowns) with support.

When HMRC would not change their position, the company appealed the decision and the case went to Tribunal for adjudication. The company’s appeal was on the basis that they had acted reasonably and that there was no overpayment from the CJRS as it was in the “spirit” of the scheme to provide support for employees in similar situations. If it hadn’t been for an administrative point regarding company payroll cut-offs, the company would have reported both employees under RTI in February 2020.

What the judge said

Unfortunately, the tribunal dismissed the appeal and ordered the company to pay HMRC the assessed amount (£20,500) as quickly as possible.

The judge also made the following comments: “As to the Appellant’s argument that the claims were in line with the spirit of the CJRS, and it would be unreasonable to exclude them on a technicality such as this, it is clear that this Tribunal has no jurisdiction to entertain such an argument. 

“Its role is to adjudicate on the law and whilst there is some debate about the extent to which public law arguments on reasonableness and fairness can properly form part of the Tribunal’s decision-making process in some circumstances, there does not seem to me to be any scope for such arguments here, where the directions draw such a clear bright line to determine eligibility for the scheme.”

Don’t make the same mistake

HMRC is taking a strict position when assessing a company’s CJRS claims and that they are unwilling to be flexible around matters such as eligibility criteria, even when it’s clear the scheme was intended to provide support to certain employees regardless of certain technicalities. This case can be seen as a test of whether the spirt of the law would override fact, as the Judgement shows they have to follow the letter of the law and HMRC strict stance on the application of the rules.

For any company that thought HMRC would focus its enforcement activities purely on fraudulent claims, and would show some leniency to employers who had made technical mistakes in their claims, this case should act as a wake-up call. Whilst HMRC originally only expected to investigate 15,000 claims this quickly doubled and shows no signs of slowing down.

If your company has not yet reviewed its CJRS claims and checked there were no technical errors, however minor, that could have resulted in a payment that the letter of the law says was not due, we recommend you start a review without delay.

As HMRC and the Government have asked claimants to self-review their claims we can expect HMRC will seek to impose harsher penalties when they later discover errors, rather than when taxpayers proactively coming forward.

If you would like advice on reviewing your CJRS claims, please contact our Human Capital tax team.