With the Furlough scheme winding down and lockdown measures being eased, HMRC has announced plans to penalise company directors who intentionally breach the furlough scheme rules. 13 July 2020 saw the first reported arrest for Furlough fraud – Contractor UK reported the arrest of a business owner for a £495,000 Furlough fraud. The business’ bank account was frozen and computers and digital equipment seized.

It is predicted that HMRC will focus on the following three potential offences when carrying out checks:

  • Furlough wages obtained and not paid to employees (in full or in part);
  • Furloughed employees and directors worked during furlough; and
  • Employers coerced employees to work while on furlough.

Provisions on Furlough-related offences and HMRC powers will be made under the Finance Act 2020 (which is expected to come into force later this summer) and, as things stand, are expected to include:

  • Power to make company directors jointly and severally liable for penalties under the furlough scheme (even where a co-director was unaware of the fraudulent conduct in question);
  • HMRC powers to impose a 100% tax charge on anyone who misapplied furlough funds, e.g. used furlough funds not to pay employees, but to cover other business costs);
  • HMRC powers to impose a 100% tax charge on anyone who has received a payment under the scheme to which they were not entitled.

It is also anticipated (but yet to be confirmed) that, once the Act comes into force, employers will have a 30-day grace period in which to report maladministration or misuse of the Furlough scheme without being penalised.

The Finance Bill had its first reading on 2 July and its second reading – when a general debate on all aspects of the Bill take place and the remaining stages – is scheduled for 17 July 2020.

For advice on the Furlough scheme, please speak to Helen Boddy or Michal Stein at Boddy Matthews Solicitors.