Please note: The information given in this article is correct as of 01/05/2020. Due to the ongoing nature of the coronavirus situation, guidance is subject to change and, as such, we would always recommend you speak with a solicitor for specific advice.
The British Chamber of Commerce has reported that more than 70% of businesses have furloughed a proportion of their workforce amidst the COVID-19 pandemic. The Coronavirus Job Retention Scheme (“CJRS”) enables employers to retain staff by placing them on furlough leave and reclaiming a proportion of their wages from the tax payer in an attempt to avoid redundancies. Given the number of businesses claiming under the scheme, it has been found to be successful in supporting businesses through extremely troublesome trading conditions. However, the enormous cost to the tax payer does leave us wondering to what extent HMRC are going to investigate and hold to account those businesses who have taken unfair advantage of the scheme.
Paragraph 2.1 of the Direction for the CJRS sets out the purpose of the scheme which states that is to is to “provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease”. This is a broad definition.
The Treasury Direction appears to clarify that a redundancy situation is not a pre-condition for access to the scheme. It suggests that, provided there is a connection between putting employees on furlough and the consequences of COVID-19, the purpose of the scheme will be met.
The scheme raises many issues including:
Can an employee who has been given notice of redundancy after introduction of the scheme be furloughed during their notice period?
Are there risks with furloughing staff that were on maternity leave, who give notice to return to work sooner than anticipated, who would financially benefit by being placed on furlough leave rather than remaining on statutory maternity pay?
Are there risks with furloughing staff that were absent from work due to ill-health in receipt of Statutory Sick Pay who unexpectedly suggest an earlier return to work in the hope of being placed on furlough leave and benefit financially?
Whilst on furlough leave, an employee is not permitted to do anything which “makes money” or “provides services”. Issues are likely to arise where an enquiry is made which those members of staff still in work cannot answer. Are those on furlough leave able to be contacted? What about assisting with a bid for new work?
Some employers may be tempted to keep staff on furlough leave but also allow them to do some work because they are keen to keep the business going. To commit an offence of fraud, a person needs to have acted dishonestly. Secondly, a person must act either with intent to gain for himself or another, or with intent to cause loss to another or expose another to a risk of loss. Employers need to be mindful that once the pandemic passes, the focus is likely to shift to the significant costs of the scheme and the recovery of costs and holding to account those that have abused the scheme which may include criminal prosecutions.
When using the portal to make a claim, employers are required to confirm that they are claiming “costs of employing furloughed employees arising from the health, social and economic emergency resulting from coronavirus”.
In order to be in a position to provide evidence in the event of any future HMRC audit of your business, you should ensure that a written record is kept stating the reason that the COVID-19 pandemic necessitated putting employees on furlough leave. This could include details of any downturn in work, closure of the business or the impact of sickness or other absence upon the ability to continue operating.
Businesses are required to keep a written record of all communications with the employee regarding the furlough arrangement, including all copies of the furlough agreement, for five years. A record of the claims for reimbursement made for furloughed employees’ wages under the CJRS must also be kept. The Employer CJRS guidance sets out the detailed information employers must keep. This five year period gives HMRC a significant period of time to investigate claims made under the scheme.
Employers should treat any concerns raised by staff of alleged abuse of the furlough scheme seriously, investigate fully and keep a clear record of its response and findings. An employee can report any suspected fraudulent claims under the furlough scheme directly to HMRC.
For any advice concerning furlough leave, please contact Farleys’ employment team on 0845 287 0939 or contact us by email.