The Government has explained that the following actions constitute an overclaimed furlough grant, and thus could lead to furlough fraud: any amount the employer was not entitled to receive; or any amount the employer is no longer entitled to receive after a change in circumstances – eg one of your client’s employees who is no longer employed by them is still having their wages claimed for under the Job Retention Scheme.
Although HMRC’s concern is to address non-compliance with the Scheme, they are not obliged to investigate innocent errors. However, your client will not be charged a penalty if they did not know of the overpayment at the time it was received, or at the time that their circumstances changed, and if it is repaid within the following time period:
- 12 months from when their accounting period ends to rectify errors
- until 31 January 2022 for sole traders/partners
Whilst errors can be rectified, your client will still need to report this as the following penalties may otherwise apply:
- income tax charge – full overclaimed amounts may be recovered if HMRC make a tax assessment for the amount overclaimed, of which payment of the assessed amount will be due 30 days after the assessment (otherwise interest will be charged on the tax from day 31)
- company officers can be made personally liable in the cases of insolvency
- 100% penalty for failing to notify HMRC, within the below notification period
- details of employers that deliberately overclaim may be published
- partners will be jointly and severally liable for any overclaimed grants repayable
If your client repays the overclaimed grant, this will prevent any potential tax liabilities. Notification of any overclaimed furlough grant payments need to be made within any of the following notification periods:
- 90 days after receiving the overclaimed payment
- 90 days after the day circumstances changed
- by 20 October 2020
For your client to make the relevant overpayments back to HMRC if it they have overclaimed, they can either correct this error in their next claim or make a payment directly to HMRC if they will not be making any future claims. Your client needs to be aware, however, that they need to contact HMRC to receive a payment reference number before making payments.
The Government has emphasised that any overclaimed grant payments must be repaid and, as already mentioned, your client can repay it to HMRC in their next furlough claim. They should notify HMRC of the amount that has been overclaimed as an additional step to making a new furlough claim and any new grant payments made to them will reflect any deductions made due to previous overclaimed payments. Your client should keep records of this for six years.
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