HMRC issues enquiry notices to reclaim furlough money claimed in error - Kuits Solicitors Manchester
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HMRC issues enquiry notices to reclaim furlough money claimed in error

HMRC issues enquiry notices to reclaim furlough money claimed in error

30th May 2022 - Published by Kuits Employment Team

So far in the bid to claw back furlough money mistakenly or fraudulently claimed, HMRC have sent what they refer to as ‘nudge letters’ to employers. The purpose of nudge letters is to prompt the employer into reviewing their furlough claims and paying back any money wrongly claimed. It was reported that HMRC were sending 3,000 nudge letters relating to furlough per week with a focus on industries such as construction and hospitality. Whilst receipt of a nudge letter does not necessarily mean the employer over-claimed from the furlough scheme, those that receive a nudge letter are asked to respond to the letter whether or not they believe they have made an over-claim.

Enquiry notices are another way of HMRC reclaiming money claimed from the furlough scheme in error. The difference between nudge letters and enquiry notices is that rather than simply encouraging an employer to review their furlough claims, the enquiry notices require specific information to be provided to HMRC about the employees that were placed on furlough, the furlough claims made and how the claims were calculated. Receipt of an enquiry notice is indicative that HMRC have begun an investigation into the business’ use of the furlough scheme. Once HMRC have received the information requested this will allow them to investigate whether the business has correctly calculated their furlough claims and whether there was any misuse of the furlough scheme (for example if employees were carrying out any work whilst they were on furlough leave).

Why is a business likely to receive an enquiry notice?

We expect that enquiry notices may be sent to: company’s incorporated at the outset of the furlough scheme; or employers who have previously paid furlough money back to HMRC either because they voluntarily realised they had made an over-claim, or off the back of receiving a nudge letter; or employers who have been the subject of a complaint via the furlough hotline either by a disgruntled employee or anybody else who has knowledge about the employer’s use of the furlough scheme; or following review by HMRC of real time payroll submissions.

What should you do if your business receives an enquiry notice?

HMRC will dictate strict timeframes in which to respond to the enquiry notice, which means somebody in the business will have to take responsibility for gathering all the information asked for in the enquiry notice and sending it to HMRC. However, responses to HMRC should be carefully considered as all responses and documentation will be scrutinised to determine if there has been an over-claim from the furlough scheme. You should therefore seek legal advice before providing any response to HMRC. In the meantime, you should ensure that no documents or records relating to the company’s use of the furlough scheme are destroyed.

What should you do if you suspect or already know your business made a mistake with its furlough claims?

Your first step, if you are concerned about your business’ use of the furlough scheme, is to consult a legal professional as soon as possible. By consulting an expert lawyer now, you could avoid a sizable fine or penalty in the future and your company’s name being publicised by HMRC for a breach of the furlough scheme. At Kuits our furlough experts can assist businesses to carry out an internal investigation into whether there have been any errors and, more importantly if there have been errors, how they happened, how much was over-claimed and how the over-claim should be disclosed to HMRC in order to avoid or minimise any financial penalty so far as is possible and to protect the company’s reputation.

The benefit of having a lawyer-led investigation is that, unlike other professional service providers, legal advice is covered by legal professional privilege, which protects confidential communications, and evidence of these communications, between a lawyer and their client.  The same does not apply to accountants.

Should you want to understand more about how our team of furlough experts can help your business, please watch our ‘Webinar – Furlough: did you get it right?’ where the team discussed everything from the common misconceptions with furlough, ongoing business risks, the consequences of misusing the furlough scheme and the severe risks if you don’t seek legal advice quickly.

What could happen if HMRC find furlough money was wrongly claimed?

There will be no doubt that HMRC will require the wrongly claimed furlough money to be repaid and this will likely be the best-case scenario for a business. However, depending on whether HMRC determine that the over-claim is deliberate or mistaken could result in a financial penalty of up to 100% of the furlough money wrongly claimed. If an over-claim is found because of an enquiry notice or nudge letter then it will be considered to be prompted rather than unprompted, which will more than likely result in a higher financial penalty.  So, if you believe your business may have made an over-claim from the furlough scheme whether deliberate or not it will always be better to deal with the issue prior to HMRC contacting the business. If you are in this position then you should seek legal advice as soon as possible.

Depending on the extent and culpability of the over-claim, HMRC may choose to name and shame businesses in order to demonstrate it is protecting the tax payer.  HMRC also has the power to issue criminal sanctions for cheating the revenue and failure to prevent the facilitation of tax evasion if it finds that furlough money has been fraudulently claimed.

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