Just as egregious, if not arguably more so, is a company conjuring up ghost or fake employees in order to pocket furlough payments. A common technique is to continue to claim for employees that have moved on either of their own accord or because they were asked to.
Remembering that the current furlough scheme also gives businesses flexibility to bring back their staff to work some of the time, lies may be told about the hours worked by employees in order to make inflated claims. A business may also hang on to furlough payments despite it being a condition of the scheme that the funds are put to employment costs.
When it comes to such activities, the tipping point between HMRC reviewing a high-risk case and commencing a criminal investigation is likely to be discovery of evidence of blatant dishonesty. Faking contracts so that furlough payments can be claimed is an example.
The backdating of an employment contract is also likely to be obvious if there are no work communications or work output for a particular employee before a set date. Extensive work email communications between an employer and employee while on furlough will also be very difficult to justify when it is a clear condition of the furlough scheme that an employee is not to work during the hours or days for which they are furloughed.
As the year progresses it can be expected that criminal prosecutions, albeit a small number, will be announced in cases where there is good documentary evidence of dishonesty.
As for punishment of furlough fraud, fines may be imposed on any company criminally convicted of offences of fraud and also tax evasion that arise in cases involving public revenue. The corporate offence of failing to prevent tax evasion is also on the table. Instances of corporate criminal liability will be rare but are possible. Individuals directly implicated will also face terms of imprisonment if convicted.
Consequences of over-claiming
Away from the criminal courts, the consequences are still severe. In July 2020, HMRC was given power to clawback payments made to businesses not entitled to them. Companies that have not repaid the amount to which they were not entitled will be charged double the amount.
There are also consequences for a business not reporting to HMRC swiftly as soon as they realise they have received more than what they were entitled. Businesses who have over-claimed are expected to make a disclosure and implement remedial action.
