In our blog of 8 July 2020, we highlighted the Finance Bill (the Bill), which was making its way through parliament. The Bill has now received Royal Assent to become the Finance Act 2020 and it includes a taxation clause which will allow HMRC to ‘claw back’ fraudulently or incorrectly claimed financial support payments introduced during lockdown, including furlough payments under the Coronavirus Job Retention Scheme (and payments under the Self-employed income support scheme and the Coronavirus statutory sick pay scheme) and confirmation of the penalty regime for a failure to notify (section 13 of Schedule 16 which in turn cross refers to the Finance Act 2008 and the provisions in that Act for a failure to notify).
How does it work?
The claw back will be punitive in nature. For every pound of wrongly-claimed payment, HMRC will impose a tax liability of 100%, less any amount already repaid to HMRC. This will apply even where a claim has been made in good faith.
In relation to the furlough payments, in addition to any employer proving that they properly claimed the payment, they must also ensure that the funds were paid to furloughed staff within a “reasonable period”. Failure to do so may also result in the funds being clawed back.
The all-important deadlines
Where an employer or an individual is or becomes aware that they have claimed or received a support payment in error, they will have a 90-day grace period from the date of receipt of the grant money, in which to notify HMRC. This will be the period ending on the later of:
- 90 days after the day on which the Act was passed (i.e. by 20 October 2020); or
- 90 days after the day on which the tax becomes chargeable (which in most cases will be the date the payment was received).
Penalties for failure to notify
In addition to the clawback, where an employer or an individual is aware that they have received a payment in error, but fail to notify HMRC with the 90-day period, the failure is to be treated as deliberate and a penalty will be applied of up to 100% of the potential lost revenue. The potential lost revenue is the amount of tax which would have been assessable on the last day of the notification period.
More detailed guidance can be found at: https://www.gov.uk/government/publications/penalties-for-not-telling-hmrc-about-coronavirus-job-retention-scheme-grant-overpayments-ccfs48 which was published on 28 July 2020 and contains a link to HMRC’s guidance CC/FS11 on the factors taken into account when HMRC is calculating the penalty for a failure to notify. That guidance can be found here: https://www.gov.uk/government/publications/compliance-checks-penalties-for-failure-to-notify-ccfs11
In light of the above, employers are urged to check and check again that the amounts they claimed under the financial support schemes were correct. Failure to do so, and to report these errors, could result in severe financial penalties.
We will continue to monitor the situation and provide further updates as they become available.
Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.