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HMRC reject more than 30,000 furlough applications

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More than 30,000 applications for the government’s furlough scheme were rejected by HM Revenue & Customs, with many likely to have been attempts to defraud the taxpayer.

As of the end of June, 1,526 claims for the coronavirus job retention scheme were rejected because applicant companies had ceased trading. A further 23,899 were blocked because applicants had no employees on their payroll for the financial year 2019-20.

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HMRC is understood to believe that many of the applications were clear attempts to defraud the system. The claims were rejected at the point of submission, the tax authority said.

The taxman also has concerns about thousands of employers who accessed the scheme, and is sending letters to warn they may need to repay amounts received. Companies are being put on notice that furlough payments may need to be returned because their business claimed for a grant that is greater than they are entitled to, or that they may not have met the scheme’s rules.

The scheme was announced by Rishi Sunak, the chancellor, in March and provides employers with up to 80 per cent of the salary cost of furloughed employees who cannot work because of the Covid-19 crisis, up to a maximum of £2,500 per month per employee.

As of August 16 it had provided £35.4 billion worth of support for 9.6 million jobs, across 1.2 million employers.

The scheme, is due to close at the end of October. This month, amid mounting concerns over abuse, HMRC announced a 90-day amnesty allowing employers to repay wrongfully claimed sums without penalties or sanctions.

Those who have abused the scheme who do not use the amnesty may face criminal prosecution as well as “naming and shaming” under HMRC’s powers to publish details of deliberate tax defaulters.

Andrew Sackey, a tax partner at Pinsent Masons, the law firm, said HMRC is “likely to come down hard” on such employers.

In July a 57-year-old man living in the West Midlands was arrested in a dawn raid as part of an investigation by HMRC into a suspected fraudulent furlough claim worth £495,000, its first arrest related to the scheme.

More common breaches of the rules have included employers asking staff to work while on furlough.

According to recent data, the tax authority has received almost 8,000 reports of potential furlough fraud, although there are indications this is a fraction of the scale of the abuse. Research by economists from Cambridge, Oxford and Zurich universities found that as many as two thirds of furloughed workers continued to work.

The tax authority indicated that the rejected claims were likely to be a mixture of fraud and bad faith on the part of applicants and honest mistakes from those who did not understand the rules.

Some will have been from directors of personal service companies. Directors of such companies with no staff could access the scheme for their own salaries where they paid themselves via PAYE, but only if they had notified HMRC before March 19 of a payment to a director. Many of these directors pay themselves annually and many would not have notified the tax authority by that date.

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HMRC reject more than 30,000 furlough applications

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