Furlough fraud totalled £5.2bn last year - 08/11/2021

Employers received £70bn in wage support over the course of the Coronavirus Job Retention Scheme’s operation, but around £5.2bn was lost to fraudsters in 2020/21.

According to HM Revenue and Customs (HMRC) reports, by 14 October 2021 £70bn had been claimed from the government to help pay the wages of 11.7 million employees over an 18-month period.

One-fifth of employers still had staff on furlough when the CJRS closed on 30 September 2021, when 1.14 million employees, (4% of eligible employees), were still working reduced hours or not at all under the scheme.

Fraud under the scheme was rife, HMRC’s annual report and accounts for the 2020/21 tax year has suggested. Some 8.7% of the £60bn in grants paid out to employers claiming furlough during that year went into the hands of fraudsters – around £5.2bn.

The final fraud figure, including the six months the scheme was running after the 2020/21 tax year concluded, is not yet known.

HMRC said that employees working, either voluntarily or under the direction of their employer, while their wages were being claimed under the scheme accounted for around two-thirds of HMRC’s current estimate of CJRS error and fraud.

Furlough fraud

Other types of fraud and error included inflated claims, furlough payments claimed by employers but not paid over to their employees, and errors when claims were processed.

It said it received reports of an organisation claiming furlough where staff had been “threatened with the sack if they didn’t continue working, even if sick” and is set to recover £357,000, while another business claimed to have furloughed all of its staff through April and May but sales data showed their trade was comparable to pre-lockdown levels, which resulted in £53,000 being recovered.

Steven Porter, partner at law firm Pinsent Masons, said: “These schemes were absolutely vital to ensure the UK economy came out of the pandemic in the best possible shape. However, any handout of subsidies and aid of this size is going to attract fraudsters.

“HMRC will now be hunting down those who made fraudulent claims, particularly through the Fraud Investigation Service. There will be a wave of civil and criminal penalties, including prison sentences. The Treasury has already clawed back £98m from fraudulent or erroneous Covid claims and a number of arrests have already been made.”

HMRC has set up a Taxpayer Protection Taskforce, which is expected to recover £1bn from fraudulent or incorrect payments over the next two years. Some 23,000 investigations are ongoing and it has so far recovered £840m of over-claimed grants in 2020/21.

HMRC said: “From the beginning it was clear the schemes would be targets for fraud and that customers would make mistakes. That’s why HMRC and HM Treasury designed the schemes to prevent as much fraud as possible before any payments were made, while still supporting quickly those who needed it.

HMRC will now be hunting down those who made fraudulent claims, particularly through the Fraud Investigation Service. There will be a wave of civil and criminal penalties, including prison sentences” – Steven Porter, Pinsent Masons

“These design measures gave us the confidence to get the schemes up and running quickly, based on sound judgement about the level of risk involved. The introduction of further changes and improvements during the course of the CJRS and SEISS (both of which ran for longer than originally envisaged) saw the fraud and error level fall considerably over this reporting period.”

HMRC also published its final set of CJRS statistics, which show the accommodation and food services sector saw the largest reduction in the number of employees on furlough between 31 August and 30 September (down by 43,000), although 9% of eligible employments in this sector were still on furlough when the scheme ended.

Travel and tourism industries had the highest take-up rates as at 30 September, notably passenger air transport (36%) and travel agency and tour operator activities (35%).

End of furlough

The CJRS take-up rate decreased faster among larger employers from their 2021 peaks. The proportion of organisations with 250 or more employees using the scheme reduced from 58% in February to 22% at the end of September.

London had the highest proportion of staff on furlough, with a take- up rate of 6%. On 30 September 231,100 people in the capital were still on furlough.

Carolyn Brown, head of client legal service at professional services firm RSM UK, noted that the expected wave of redundancies post-furlough does not seem to have happened.

“Encouragingly advance notifications to government by employers planning more than 20 redundancies have not materialised with many sectors saying that they made the redundancies they needed months ago,” she said.

“However, the proportion of the larger employers (with 250 or more jobs) using the CJRS reduced from 58% in February 2021 to 22% at the end of September 2021, and we know the scheme has been primarily supporting smaller employers. Capturing redundancies under 20 is more difficult and the ONS statistics on changes to the pattern of employment after September will not be with us for a few weeks yet.”

 

 

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