Coronavirus Job Retention Scheme Enquiry

The Coronavirus Job Retention Scheme (CJRS), launched in April 2020, was developed to offer support to employees who would otherwise have been laid off during the COVID-19 pandemic. However, the guidance was initially unclear and has led to widespread errors in claims, resulting in a surge of HMRC enquiries into CJRS claims.

We recently supported a new construction client with their CJRS enquiry that investigated furlough payments made to employees and directors from the start of the scheme up to the September 2021.

The initial enquiry was raised by HMRC due to an error in the way the furlough payments had been calculated when they were acted for by another firm. As the furlough calculations follow a particular process, the error had been flagged up on HMRC’s system and therefore was the catalyst for the enquiry.

When the client first joined EQ, we recalculated their furlough payments and advised HMRC that there was an error of around £4,000. The client relied on the previous agent to calculate the furlough payments, so was not aware that there was an error until it was pointed out to them.

With the enquiry open, HMRC took the opportunity to look further into the running of the business to determine whether any further errors had been made. During a telephone interview, HMRC asked the following questions to help them get a better understanding of how the company operated during COVID:

• How was the business effected by COVID?
• The company continued to generate sales during the period of COVID, so could the client justify the level of staff furloughed. How did they operate with less staff?
• Did the client understand the rules of the scheme?
• Were staff given written agreements regarding furlough arrangements?
• Were staff time records kept?

As part of the investigation, furlough calculations were also requested, along with copies of sales, purchase ledgers and bank statements, with follow up questions raised after their review of the documents. Employees of the business were asked to confirm via a signed letter that they were furloughed during the periods claimed for and that they received the amounts claimed for. Directors were also asked what activity they undertook during periods they claimed furlough.

In the end, the client had to make two further small concessions to HMRC – one related to a member of staff who worked for a short period during two months of claims and the other related to the amount of work one of the directors did. One director had been fully furloughed, but it was agreed that they had done around 5% of commercial work for the company, so an adjustment was made.

The enquiry lasted around 9 months and at a cost to the client of around £6,000 for overclaimed furlough, £4,000 of that being on the initial error in calculation that was agreed in the first week of the enquiry. Given the length of time it took to conclude the enquiry, it was something the business could’ve done without, but they appreciated that HMRC had to do their job to collect any over claims.

As the client had thought their claims were legitimate, and the errors were merely mistakes, HMRC did not charge any penalties even though they can charge up to 100% of furlough overclaims. HMRC will continue to investigate more clients in the future and with proper support from your advisers, hopefully you will be in a position to justify your claims.

If you need any support in relation to HMRC enquiries, please get in touch with your usual EQ contact by calling one of our offices or emailing info@eqaccountants.co.uk.

Alternatively, if you would like to discuss any issues affecting your construction business, please email our EQ Property & Construction team at property@eqaccountants.co.uk