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Markel Tax

08 Feb 2021

HMRC’s challenge to erroneous CJRS and SEISS claims gathers pace

In previous articles, Markel Tax’s Steve Price and Jacqui Mann considered the compliance aspect of CJRS and SEISS and how HMRC were likely to tackle erroneous claims. With HMRC’s compliance activity now in full swing, consideration can be given to the practical application of HMRC’s interventions.

What does the legislation say?

Section 16(8) FA2020 gave HMRC the power to raise assessments to recover CJRS and SEISS grants where HMRC ‘considers’  that the claimant was not entitled to the grant or where CJRS grants were not used to pay furloughed workers.

The legislation allowed employers to correct erroneous claims by 20 October 2020 without attracting any penalty. After that date, the legislation allowed HMRC to charge penalties of 50% - 100% on top of the amount of grants due to be repaid and interest. This is based on the automatic presumption of deliberate and concealed behaviour.

How did HMRC get started?

During the summer and autumn of 2020, HMRC issued so-called ‘nudge’ letters to employers where it had concerns about claims made. These encouraged employers to review and correct claims by the October deadline. There is little doubt that those failing to respond were earmarked for future interventions but even before the October deadline expired, HMRC had already begun to challenge some claims. Unsurprisingly the number of interventions has dramatically increased post October.

Who is carrying out these checks?

It is known that HMRC staff from all backgrounds and specialisms were drafted in at short notice to deal with the administration of, and compliance with, the CJRS and SEISS initiatives. Staff have had little or no training and follow a very regimented approach to every case.

Using the example of a member of HMRC’s call centre suddenly finding themselves responsible for the conduct of what is essentially a tax enquiry when they have no knowledge or experience of enquiry work is a worrying prospect. Taxpayers and agents alike should be very aware of this to ensure that cases are handled in the right way and any judgements made are soundly based. Nothing should be taken at face value.

How are the checks being carried out?

Whilst HMRC’s regimented approach to these checks provides consistency which is always welcomed, there is also a significant downside to this ‘one-size-fits-all’ approach. This is that the intensity of the interventions, treatment of the taxpayers involved and the outcomes are exactly the same irrespective of whether they have made genuine errors or are guilty of making entirely false claims. This, of course, contradicts HMRC’s earlier promises to only come down hard on those who are taking advantage of the initiatives for financial gain rather than those who have genuinely tried to get things right.

The hard line taken is clearly fuelled and encouraged by public opinion but, even so, should be moderated in individual cases where appropriate. Unfortunately, however, if HMRC staff do not have experience of enquiry work, achieving that moderation may be somewhat more difficult.

HMRC’s checks generally cover all furlough claims made and include extensive information requests covering what seems to be every conceivable aspect of the claims including much of the detail already evident from the original claim submissions.

Whilst the sheer volume of information requested seems extremely onerous, as long as it relates to the claim(s) in question, HMRC is entitled to demand it. A failure to comply will inevitably lead to formal Schedule 36 notices, initial and daily penalties and ultimately even rejection of claims on the grounds that they have not been adequately demonstrated as valid.

Business bank statements are being requested, not as first thought to simply check that amounts were actually paid to employees but also to check for business activity during the early furlough periods in cases where all staff were furloughed.  This relies on the subjective interpretation of HMRC’s case officers with the obvious concern being that HMRC has the power to raise assessments where it merely ‘considers’ a claim to be erroneous.

Taxpayers and agents should also be wary of seemingly innocuous questions such as how Covid-19 affected the business as this is more appropriate to SEISS claims rather than furlough. The answers given could well open up the opportunity for HMRC to check SEISS claims as well as they are covered by exactly the same legislation.

Evidence shows that claims are being very stringently tested and the detailed questioning contained in HMRC’s opening letters continues in subsequent correspondence.

Virtual meetings or conference calls are also being requested with employers and their agents but it should be borne in mind that there is no obligation to attend such meetings and cannot be construed as a lack of cooperation if it is chosen to conduct the case by correspondence instead. This at least provides a solid record of exactly who said what and eradicates the potential for misunderstandings in verbal communication.

HMRC seems to be challenging even very minor amounts, a recent case including a challenge to an amount as low as £10.27!  The focus is clearly on demonstrating the principle that the total claim is wrong rather than on the individual amounts.

A hard line is also being taken by the case officers in suggesting that if one individual employee’s claim is wrong then the whole of that total claim for all employees will be disallowed. Similarly, if only one of several different claims is wrong then all claims will be disallowed. The outcome of this blanket approach is yet to be tested but will inevitably lead to unnecessary angst further down the line.

Finally, there is evidence that HMRC’s case officers, bolstered by public opinion and backed by strong legislation, are not only taking a very hard line but are prejudging outcomes based on the mistaken belief that all employers who have submitted erroneous claims are guilty of taking money that they aren’t entitled to and should be punished. This obviously isn’t the case and care should be taken not to accept that type of judgement where it isn’t warranted. 

What needs to be done now?

The message is clear – employers and agents should continue to carefully review previous claims and correct any errors as soon as possible. By doing this, employers will still have to pay back any amounts over-claimed with interest but will avoid penalties and any further unwanted attention from HMRC.

It is also important for taxpayers to be properly represented during these checks to ensure that they are dealt with in accordance with existing legislation and HMRC guidelines and that outcomes are both appropriate and proportionate.

Markel Tax has extensive experience in this and all other forms of compliance issues through its team of ex-tax inspectors and is available to help you through these checks. For more information, please call 0333 305 3667 or contact Steve Price or Jacqui Mann

Tagged Tax Investigations
Next article in series

05 Feb 2021

Changes to R&D legislation combined with a post-pandemic economy: A time to be vigilant