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Furlough audits by HMRC: How to prepare

The anniversary of the first national lockdown is coming up. Whilst this may not be much (if any) cause for celebration, it is a good time for employers to reflect on the events of last year, in particular the introduction of the Coronavirus Job Retention Scheme (“CJRS”) and any claims employers have made under it.

The CJRS was introduced to support employers during the difficult circumstances caused by the Coronavirus pandemic by assisting with the payment of employees’ salaries. The CJRS will have come as a relief to many however, as with anything new, there was bound to be teething troubles. Employers should take the time now to check old and current claims for accuracy as mistakes happen and understandably will have done in relation to the CJRS due to its rapid introduction, complex provisions and frequent amendments.

HMRC suspects that a significant number of claims under the CJRS are fraudulent and will therefore be carrying out an investigation. This investigation may begin with cases of suspected fraud but will not be limited to such cases. HMRC may carry out audits for five years after the CJRS ends (20 years in cases of suspected fraud) and are likely to cover many employers during that time. They will be looking for mistakes, whether deliberate or accidental, and are likely to claim back money that has been overpaid and may impose penalties such as fines.

HMRC is encouraging employers to report any mistakes and are likely to be more lenient to those that self report rather than those who are “found out”.  This is a similar approach to that taken in national minimum wage audits where greater discretion is given to employers who self report.

In addition, it is important to remember that HMRC has begun publishing the details of employers’ claims and the public can report to HMRC if they suspect an employer is abusing the scheme. HMRC is unlikely to be lenient to employers who haven’t noticed their mistakes or who try to cover them up.

What should employers do?

We would advise getting your house in order now before HMRC comes knocking. Conducting an internal audit will have the benefit that you can spot and report any mistakes. It will also be a good opportunity to make sure you have all the relevant documents and that they are easy to find.

If HMRC does get in touch to conduct an audit, they are likely to give tight deadlines for employers to provide the relevant documents so it will save time if you have already collated them and stored them somewhere easily accessible. If you don’t have the relevant documents, you won’t be able to show that a claim for furlough pay was legitimate.

You should retain all relevant documentation for at least five years from the end of the CJRS. We have put together the following (non-exhaustive) list as a starting point:

  • written confirmation sent to each employee that they have been furloughed and/or flexibly furloughed;
  • the amount claimed for each employee under the CJRS;
  • the claim reference number;
  • your calculations;
  • details of your employees’ usual hours worked, the number of hours they were furloughed and (in the case of flexibly furloughed employees) their actual hours worked;
  • evidence that the employee was paid at least as much as the CJRS claim (i.e. payslips);
  • the amount paid in pension and NI contributions; and
  • details of any adjustment/correction to a CJRS claim.

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