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New law: Companies claiming furlough payments face new penalties if applications were fraudulent

Directors of companies that have furloughed employees and recouped part of those employees’ remuneration as grants from the government under the Coronavirus Job Retention Scheme (CJRS) should check that their companies were entitled to claim those sums, and used them properly, or risk tax penalties and, potentially, personal liability.

Proposed new rules say that, where a director intentionally breached the CJRS rules so their companies received grants they were not entitled to under the scheme, or did not apply them as required under the scheme, those grants will be treated as taxable income, and HM Revenue and Customs (HMRC) will have powers to levy a 100 per cent tax charge. Effectively, the full amount of the payments will have to be returned to the government.

HMRC will normally be able to investigate up to four years after a payment was made. However, they will have six years in cases of careless behaviour and twenty years in cases involving deliberate misuse of grants. If a grant has to be repaid but the company is insolvent, directors may become personally liable. There is a possibility that innocent directors may also be penalised if other directors acted fraudulently.

Employers must tell HMRC if they knowingly received payments they were not entitled to.

Companies that have kept detailed records identifying who has been furloughed, when furlough was agreed/notified in each case, the impact of COVID-19 on the business, and how the grants under the CJRS have helped it, will be in a much better position to rebuff HMRC attempts to claw back grants made to them than those who have not.

Operative date

  • Now


  • Directors should check whether their companies have made claims for CJRS payments, that any such claims were legitimate and that any sums received were used for the purposes for which they were received, or risk having to pay extra tax.

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