Connie Cliff
PSL Principal Associate
Article
10
As set out in our recent alert, COVID-19: Consequences of Breaching the CJRS, the signs indicate that HMRC are rolling up their sleeves to deal with Coronavirus Job Retention Scheme (CJRS) overclaims, whether they be inadvertent or deliberate. It is vital for all employers who have made claims under the CJRS to make sure they are able to spot errors and deal with them.
On 28 July, two new Guidance notes were published:
The Overclaims Guidance sets out what employers need to do if they have claimed too much from the CJRS. This repeats and expands the guidance previously contained within the 'Claim for wages through the Coronavirus Job Retention Scheme'.
The new guidance sets out the time scales for rectifying any errors:
As for underclaims of the correct grant amount, the employer will always need to contact HMRC to amend their claim as HMRC may conduct additional checks. Underclaims relating to the period up to 30 June 2020 are not possible after 31 July 2020.
A record of any claim adjustment must be kept for six years.
The Penalties Guidance contains important information about the recovery of overpayments and potential penalties relating to overclaimed CJRS grants.
An overclaimed CJRS grant includes any amount an employer was not entitled to receive or was no longer entitled to keep after circumstances changed, for example, if the employee is no longer employed but the employer continued to receive the CJRS grant for them after they left.
If an employer has overclaimed a CJRS grant and has not repaid it, for example by adjusting a subsequent claim, they must notify HMRC within the notification period. The notification periods are set out as in the Overclaims Guidance above.
The notification period is relevant for determining whether a penalty may be imposed (see below).
HMRC may recover the full amount of the overpaid grant by making a tax assessment for the amount the employer was not entitled to and has not repaid. This will include amounts the employer has "not used to pay furloughed employee wages and associated costs within a reasonable period". The tax assessment will be notified in writing with payment due 30 days after the assessment. Interest will be charged on late payments and a late payment penalty may be charged if the amount remains unpaid 31 days after the due date.
Where HMRC have not made an assessment, the employer must still include the relevant details of any overpaid CJRS grant, on the appropriate Corporation tax return or on a 2020 to 2021 Self-Assessment tax return.
HMRC may impose a penalty of up to 100% of the overclaim on employers who fail to notify HMRC of an overclaim "within the notification period".
When deciding the amount of any penalty, HMRC will take account of whether or not the employer knew they were not entitled to the CJRS grant when it was received or when circumstances changed. If:
then the failure will be treated as 'deliberate and concealed'. This means a penalty of up to 100% could be charged on the amount of the CJRS grant the employer was not entitled to receive or keep and had not repaid by the last day of the notification period.
While a penalty may be imposed on an employer who fails to notify HMRC of an error within the notification period, HMRC does give some comfort to employers who are genuinely unaware of an error within the notification period but later repay any overpayment. HMRC states it will not charge a penalty if the employer did not know it had been overpaid at the time it was received, or at the time that circumstances changed and if the employer repaid it within the "relevant time period". The relevant time period is:
This, however, should not be taken to mean that employers should avoid putting in place checks of their submitted claims within the notification period. It does mean though that if those checks are not done then, there is an opportunity to check again before the end of the relevant period.
If an employer has a penalty imposed for deliberate failure arising as a consequence of an incorrect CJRS grant claim, then their details may be published under the Publishing details of Deliberate Defaulters regime.
Company officers, who knew the company had overclaimed a CJRS grant at the time it was received or knew at such other time when a tax liability arose that the claim was overpaid or not used for the intended purpose, can be made personally liable to pay the tax charged on their company's overpaid CJRS grants in circumstances where the company is in insolvency and the tax cannot be recovered from the company.
Note: It should be remembered that the Treasury Direction made under Sections 71 and 76 of the Coronavirus Act 2020 at 2.4 provides that:
"the person making the claim accepts that
(a) A payment made pursuant to such claim is made only for the purpose of CJRS; and
(b) The payment must be returned to HMRC immediately upon the person making the CJRS claim becoming unwilling or unable to use the payment for the purpose of CJRS".
Accordingly, directors of a company need to be very cautious of making a claim under the CJRS that they suspect they may not be able to pass onto the furloughed employees due to the company becoming insolvent.
If a partnership receives an overclaimed CJRS grant that is not repaid, HMRC may assess
The partners will be jointly and severally liable for the amount assessed.
If the amount is not repaid and HMRC have not issued an assessment, one of the partners must include it in their 2020 to 2021 Self-Assessment tax return. The other partners will not be required to self-assess the amount. HMRC may assess the relevant partner for the penalty chargeable, but all partners will be jointly and severally liable for any penalty assessed.
HMRC reassures employers that it will not be actively looking for innocent errors in their compliance approach. HMRC's priority is "addressing deliberate non-compliance and criminal attacks". Nevertheless non-deliberate errors are still subject to repayment and possible penalty. Employers should check they have effective controls in place to ensure that what is submitted to HMRC is accurate, consider undertaking an internal audit and ensure that there is a comprehensive audit trail. If an error is spotted deal with rectifying it as soon as possible.
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