The Finance Act 2020 received Royal Assent on 22 July 2020. The Act covers many areas but importantly it started the 90 day clock running for employers to conduct a furlough scheme audit and report incorrect or erroneous claims to HMRC.

The Coronavirus Job Retention Scheme has been a life line for many businesses over this difficult period of often very stressful decisions and has helped many to retain staff who would otherwise have been made redundant. However, it is also recognised that errors may have occurred, deliberately and otherwise, by employers accessing the scheme and making claims.

Employers and businesses have been granted a 90 day amnesty period during which they should carry out a full audit of their claims and if they find errors in their claims employers have a chance to simply repay the monies made in claims in error at the height of the crisis. If employers do this and repay they will not face any penalty.

The penalties for erroneous furlough claims that are not audited and repaid are severe. The first arrests for furlough fraud were announced by HMRC in July but these are only likely to apply to cases of “deliberate and concealed” non-compliance and where HIMRC are considering fraud charges. Hopefully not all erroneous claims will be dealt with by arrests.

In the vast majority of cases, where the furlough scheme was not used properly, penalties applied by HMRC will be clawed back by imposing income tax rates of 100%. Employers should note that penalties will not just be applied to deliberate claims that were an abuse of the scheme, but to all furlough claims that were in some way incorrect as HMRC can also reclaim money where there has been genuine errors leading to non-compliance.

So! If you are an employer and have used the furlough scheme, do an audit of claims and make sure that they are all genuine and correct – if not use the amnesty period of 90 days from 22nd July 2020 to repay any excess claims and there will be no penalty. Otherwise look out for a very severe ‘pay back’ claim from HMRC.