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Markel Tax

16 Jun 2020

CJRS – HMRC’s compliance activity moves a step closer

Steve Price and Jacqui Mann have previously highlighted the risks of getting claims wrong and predicted how HMRC was likely to tackle non-compliance; HMRC have now moved forward with their compliance strategy and so Steve and Jacqui now consider the draft provisions.


On 29 May HMRC opened a consultation process to gauge the profession’s view on the measures they intend to take forward, this consultation closed on 12 June – a very short period reflective of the Government’s need for expediency on this matter. The content of the consultation suggests that our predictions over the past few months will soon become a reality and so we now consider the impact of the current draft legislation, which will be included in the 2020 Finance Bill.

Purpose of the proposed legislation

In general terms, this draft legislation seeks to bring CJRS and SEISS grants within the scope of existing tax legislation.

Grants received under the CJRS scheme are to be treated as potentially taxable income, in accordance with normal accounting principles for all businesses including trades, UK or overseas property and investment businesses. There are some exclusions relating to organisations such as community amateur sports clubs, but generally most businesses will be taxed on this income, subject to any allowable deductions.

Power to claw-back

The draft legislation gives HMRC the power to raise income tax or corporation tax assessments to recover CJRS and SEISS grants to which the claimant was not entitled, or where CJRS grants were not used to pay furloughed workers. The measures also allow HMRC to charge penalties in cases of deliberate non-compliance.

Non-entitlement includes situations where eligibility ceased part way through and where CJRS grants were not paid to employees within a ‘reasonable period’.
What constitutes a ‘reasonable period’ has yet to be explained or defined, but we are seeking to clarify this through our recent submission to the consultation process. Para 8 of the draft legislation provides more detail about the consequences of making incorrect, erroneous or fraudulent claims. This section determines that if HMRC considers that a person or organisation has received grants to which they are not entitled it can issue assessments to recover as ‘tax’ the amount of the grant they were not entitled to receive. In order achieve this claw-back, para 8 also provides that once a payment falls to be subject of this section, it ceases to be subject to paras 1 to 7, i.e. the recipient is no-longer taxable in respect of it. 

In order to ensure that the treasury cannot be left out of pocket, the legislation provides that in raising such assessments, no losses, deficits, expenses or any other allowances can be used to reduce the amounts assessed and no deductions are allowed against CT profits.

The legislation essentially works by making the assessable amount due under para 8, a notifiable charge, allowing the extant failure to notify legislation to operate in respect of it. In effect, a claimant would be required to notify and make a return of the excess claim to HMRC.


The legislation sets out that if at the time when a payment first falls to be subject to para 8, that the claimant knew that the claim was incorrect, their failure to report the assessable amount would be considered to be deliberate and concealed and attract a penalty within the highest range available. This position is arguably not unreasonable, on the basis that these cases are in theory ones of fraud and the general public are likely to be supportive of punitive measures for those who abuse the system at a time when the public purse can ill-afford to lose money in this way.

However, the legislation goes on to say that where it has been found that an error has been made, unless the amount assessable under para 8 has been reported by the later of the 30th day following the date of the making of the incorrect claim, or the 30th day following the date of the passing of the proposed legislation, the incorrect claim will be treated as deliberate and concealed regardless of how it came about.

This part of the draft legislation is far more of a concern from a claimant’s perspective and the formulation is not dissimilar to that used in HMRC’s ‘Requirement To Correct’ (RTC) and ‘Failure To Correct’ (FTC) code, which addressed offshore tax irregularities. It makes it incumbent on the claimant to ensure that their claim was accurate – new claimants have 30 days to revisit their claims whereas for claims made prior to the passing of the act claimants will have 30 days from that day to seek comfort that these old claims were correct.

In this way, similar to the RTC/FTC, there is a retrospective element to the law which is somewhat controversial. The basis of the present harmonised penalty system brought in by Sch 24 FA 2007, is that the penalty is determined by the behaviour of the taxpayer in their submission of an incorrect document, whereas under these rules, a penalty can be charged with reference to an amount of tax which arose prior to the existence of that penalty rule and not because of taxpayer’s behaviour in submitting it, but because of their subsequent behaviour.

As with all failure penalties, the concept of reasonable excuse should apply and the legislation does not rule this out, but similar again to RTC/FTC, it is possible that HMRC will not view use of a qualified agent in making the original claim as a reasonable excuse for these purposes. The reason for this view is that the granting of the 30-day period of grace to check a claim is correct, provides the opportunity to seek a second opinion from another adviser and even invites the claimant to do this. If all that a claimant does in that time is recheck their own work or get their original agent to check theirs and a mistake is not spotted, it would be hard to persuade HMRC that the claimant’s obligation had been fully discharged. With a possible penalty of between 50 and 100% of the excess claimed, getting a claim checked would be a worthwhile exercise.

Partnerships and companies

In the case of partnerships, if only one partner knew that a claim was incorrect, all other partners are treated as if they also knew and each partner is jointly and severally liable for the tax assessed. This is an interesting feature, as joint and several liability was a characteristic of the taxation of partnerships prior to the introduction of income tax self-assessment and certainly made it easier for HMRC to pursue partnership debts, perhaps HMRC thinking has returned to this idea.

The position is similar for companies, but in this case if any of the directors or company officers are considered culpable and the company is unable to pay the tax and penalties due, HMRC can, subject to certain conditions, recover the amounts directly from the directors or company officers.

Managing deliberate defaulters

Normally, deliberate defaulters would be considered for enrolment into HMRC’s Managing Serious Defaulters (MSD) programme, with the possibility of having their details published if specific conditions are met. While it can be assumed that this will also apply to these claims, the position is not clear. Again, we have sought clarification on this, through the consultation process.


Given the vast sums of money at stake and strong public opinion for it to take action against those abusing the system, HMRC will be under enormous pressure to act promptly to recover amounts over claimed and penalise the abusers of the coronavirus schemes.

While this is to be welcomed, care needs to be taken that HMRC’s target-driven officers clearly differentiate between those making honest mistakes and those genuinely abusing the system.

Now is the time for businesses to check the validity of their previous claims and take immediate action if errors are found, as once the legislation has been passed, under the present proposal, there will be only 30 days for claimants to make any necessary disclosures of excess claims before HMRC treat them as deliberate and concealed errors and so leaving it until the last minute may mean agents will not have the capacity to check old claims. The potential consequences of HMRC’s own intervention thereafter are likely to be much more severe.

Markel Tax has extensive experience of all types of compliance issues so for further information about CJRS or any other aspect please contact or or call 0333 920 5708.

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Capital Allowances for Leaseholders