HMRC doesn’t know the true cost of employers abusing the furlough scheme

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Emma Guy

According to a report released by the National Audit Office (NAO), HMRC doesn’t know the true cost of furlough fraud and employers abusing the scheme.

In the report, released on 23 October, the NAO stated:

There is evidence that significant levels of furlough fraud occurred, with limited controls over employers’ arrangements with employees.

It added:

The scale of total fraud and error is likely to be considerable, particularly for Coronavirus Job Retention Scheme (CJRS), but HMRC will not know the actual levels for some time.

HMRC guessed initial fraud levels

The CJRS scheme had been largely successful in protecting jobs through the lockdown period. The scheme supported 9.6 million jobs and throughout the coronavirus lockdown but especially in May, when approximately “30% of the workforce eligible for the scheme” was furloughed.

With a large number of the population benefitting from the scheme, as with any service offering financial support, it can be a target for fraud and abuse.

Originally HMRC predicted that the cost of fraud and error to the CJRS would be between 1% to 2%.

However, according to HMRC’s planning assumption, the total cost could range from 5% to 10%. In real terms, that’s between £2.0bn to £3.9bn. 

While the NAO report explains that HMRC’s initial estimates were based on assumption rather than evidence, it is a concern that this large figure has been estimated on a number based on out-of-date samples. HMRC’s predictions were made based on payments made up to mid-September, meaning that the current cost is unknown.

A third of employees were asked to work while furloughed 

NAO has confirmed that HMRC’s fraud hotline received more than 10,000 reports which it claims is mainly related to furlough fraud.

To date, the department has not yet carried out studies to estimate the scale of the issue. However, the NAO has. It carried out a survey which found:

9% [of those surveyed] admitted to working in lockdown at the request of their employer, and against the rules of the scheme. Other surveys indicate between 7% and 34% of furloughed employees surveyed worked at the request of their employer while furloughed.

One of these ‘other surveys’ was conducted by Crossland, an award-winning legal firm specialising in employment law.

It commissioned a poll which asked 2,000 furloughed full-time staff about their experiences of furlough. The employees worked across a variety of sectors.

Of those furloughed staff:

  • A third were asked to carry on doing their usual job, while 29% were told to undertake more administrative tasks.
  • One in five have been asked to either cover someone else’s job or to work for a company linked to their employer while on furlough.
  • The rule breaking was evenly spread across SMEs and larger corporates.

In June, plans were drafted to introduce a 30-day confessional window for those abusing the system. However, HMRC has yet to confirm when this will come into effect.

Crossland managing director Beverley Sunderland stated:

Since the Coronavirus Job Retention Scheme was launched about three months ago, we’ve received an avalanche of calls from worried employees, all unrelated to our own clients and many with the same story: I’ve been furloughed but my employer has asked me to keep working.

This is fraud that is impacting many industries, job roles and seniority levels. In one case in the manufacturing sector the employer had not only asked the furloughed employee to work but had also imposed a 20% pay cut, so their workforce was costing them nothing.

An ultimatum: work or leave the country

Crossland has been contacted from employees across industries with similar stories: they were furloughed and asked to work otherwise they wouldn’t be paid. In some cases, they were threatened with dismissal which would mean having to leave the UK.

Sunderland explained:

We heard from employees in the graphic design industry: some had been asked to continue working one day a week so they could be paid 100% of their salary.

We’ve had cases of employees working on a work permit (sponsorship licence) in the professional services industry told they must continue working when furloughed or face being dismissed and asked to leave the country. 

Furloughed employees in the appliance fitting business asked to carry out orders to justify the ‘money’ they were being paid. Investment companies trying to use the scheme as an alternative to performance management – if an employee isn’t hitting target, they were furloughed or threatened with furlough.

However, manipulating furloughed employees into work isn’t the only type of furlough fraud HMRC has found.

The government will rely on whistleblowers in the future

The NAO concluded that HMRC “would tackle fraud through whistleblowing and retrospective compliance work”. However, it’s not as straightforward as it may seem.

Employees would not have necessarily been aware that their employer was part of the government furlough scheme unless their employer had informed them. If this information hadn’t been communicated, it is possible that an employee wouldn’t be aware of that they were complicit in committing fraud. 

To help employees, HMRC intends to publish the names of employers who claimed. HMRC may even notify employees through their personal tax accounts when an employer has claimed to increase transparency. 

The initial question is why weren’t employees notified. The NAO explained:

Controls such as contacting employees directly or publicising which companies claimed furlough payments were considered but rejected. HMRC concluded it would have been unrealistic to contact employees because of the large numbers involved, and that publishing a list of employers risked deterring too many legitimate claims.

True cost won’t be known till end of 2021

HMRC began developing a series of work to identify and understand the full scale of fraud and error caused by the CJRS.

Whilst this work was started in September and will be reviewed at the end of 2020, and again in the spring of 2021, HMRC won’t know the true cost of furlough fraud until the end of 2021.

The NAO stated that it had been informed by HMRC in October that it would be using private contractors where necessary.

HMRC does not yet know the scale of fraud and error it needs to tackle to any degree of certainty, and it is not yet clear for how long its compliance activity will be affected by the COVID-19 pandemic

The department “does not expect to have a complete assessment of the total fraud and error until the end of 2021 at the earliest”. The levels of organised criminal activity including the stealing of taxpayer identities and coercion of taxpayers to make fraudulent claims are also being monitored.

Launching schemes without pre-agreed systems in place is a recipe for disaster and leaves taxpayers’ money an open target for those looking to cash in. Had the government processes in place to deal with national emergency scenarios, this could have been avoided and reduced fraud risks.

The schemes set up to support business owners and employees alike have largely been a lifeline throughout the coronavirus pandemic. And as the pandemic continues, such schemes will continue to be needed. For this reason, HMRC and the NAO’s call for transparency is welcome. 

Get involved

To anonymously report a case of suspected fraud follow the information via this online form.

You do not have to give your personal details, and any information you give will be treated as confidential. HMRC has advised that you do not try to find out more about the tax evasion or let anyone know you’re making a report.

If you would like to share your experience of furlough please contact [email protected]

 

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  • Show Comments
    1. This will be a mess. With most small to medium sized businesses suffering a fall in sales, who is going to want to grass up their boss if the fallout will cause the business to go under in an economy where there are no jobs? People breathing a sigh of relief that they still have a job at all will end up unemployed. Fraud is fraud and it’s morally reprehensible. But so many grey areas these days. Really hope the unions are going to step up to make sure employees don’t end up in court for fraud.

    2. It is time to bring in a permanent Basic Income for everyone. There would be plenty of money if they closed the tax havens and taxed the better off and corporations properly. The “work ethic” is destroying the planet, and much of it depends on tourism, which is also destroying the planet.

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