If you made a claim for a furlough grant during the pandemic you may shortly receive a letter from HMRC asking you to check whether your claim was correct.

HMRC has started writing to selected employers, asking them to review their CJRS (furlough) claims but – unsurprisingly - the letters don’t specify what is wrong with the claim, or even which month’s claim HMRC has an issue with.  

HMRC believes between 5% and 10% of CJRS grants contain mistakes or have been illegally claimed (ie fraud). HMRC’s Jim Harra, speaking to the Public Accounts Committee, estimated the value of CJRS fraud or error to be £1.75bn to £3.5bn, but that assumes that every error has made an entire CJRS claim completely incorrect which is extremely unlikely.

In reality, there are likely to be a large number of very small errors spread across many claims, as the furlough pay calculations presented a steep learning curve for payroll staff and tax advisers. For example, given the confusion about holiday pay and entitlement  it is unsurprising that mistakes have been made.       

HMRC said it will focus on fraudulent claims and not on cases where the employer has made an innocent error. It says it has identified 27,000 CJRS claims where “something looks wrong” (and it is initially enquiring into 11,000 of those claims).   

What does the letter say?

The HMRC compliance letter says the employer’s CJRS claim appears to be incorrect because, for example, ineligible employees were included, or too much was claimed for some other reason. No details are given of how much the overclaim may be or who the potential ineligible employees are.

The HMRC letter doesn’t even detail which CJRS claim the employer has submitted that is suspected of being incorrect.

To find out where the error may lie the employer or their agent will have to trawl through the details of every CJRS claim submitted for the months April to August, looking for the one or two potentially ineligible employees, and double-check every single furlough calculation.   

What is triggering the letters?

A trigger for these letters could be that the employer was including employees on furlough who were not paid through that PAYE scheme in February or March 2020, but who do qualify as they fall into one of the exceptions such as:

• transferred from another employer under TUPE
• transferred from another PAYE scheme as a result of a scheme reorganisation
• returned from parental leave
• returned from active military service after 10 June

Those exceptions may not have been picked up by the HMRC computer when it compares the payroll details the employer submitted in March 2020 to the list of employees on furlough for say July.

What action should employers take?

The compliance letter asks employers to respond to HMRC by telephone if they think the CJRS claim was correct. However, as it can take some time for HMRC to answer calls at the moment you may have to wait some time for them to answer.

If the call is answered, and the employer passes the security questions, they are told that an HMRC officer will be assigned to the case, but the system for processing the CJRS investigations won’t be ready for some weeks. This contradicts the letter which says that if a reply is not forthcoming by 22 September HMRC will open a compliance review which could trigger penalties. 

Where there is an overclaim

If the employer thinks that the CJRS claim is incorrect they are asked to reply by email, and then instructions will be given to make a formal disclosure. This is a bit premature as there is still time to make a voluntary correction of earlier CJRS claims.

The structure of penalties for overclaimed CJRS grants is set out in factsheet CC/FS48. But no penalty will be applied for errors in CJRS claims if the excess grant is corrected within the later of:

• 90 days from the receipt of the grant, and
• 20 October 2020.

There are also no penalties for submitting an inaccurate CJRS claim which resulted in a grant that was lower than the employer was entitled to. 

Reply by email

Your accountant or tax agent, if you have one, should get a copy of the CJRS compliance letter, but that system doesn’t always work, so we recommend that you send  a copy of the letter you receive to your accountant. Use the email address in the letter to reply to HMRC with reasons why the CJRS claim is correct or not.

Noel Guilford