There have been reports that the Chancellor will introduce powers in the upcoming Finance Bill that will allow HMRC to investigate, claw-back and penalise fraudulently claimed Job Retention Scheme (‘JRS’ or ‘Furlough’) payments and grants made under the Self-Employed Income Support Scheme. Articles hint at some large businesses that have abused the scheme, by, allegedly, keeping staff at work while claiming the grants.
The complexity of JRS rules and the haste with which it was introduced means there will be many businesses that have made genuine errors. This will be easy pickings for HMRC investigators. Whether there will be leniency for genuine mistakes versus alleged fraud remains to be seen.
All JRS claimants should review what they have claimed so far against current best practice guidance. If you identify an overclaim, repaying unprompted would be a recommended course of action. I also urge claimants to check whether they have tax investigation fee insurance in place that covers accountants’ fees defending you in case of a future HMRC investigation into your furlough claims.
Hidden tax costs
The general rule is that Grant income received by a business counts in calculating taxable profits. This includes JRS, SEISS, support grants and pivotal grants. In the case of JRS, the income will be largely offset by wages paid to employees meaning a limited tax impact. This is not true of other support, which will be taxable in the accounting period it is received. Grants are not really “free money”.
EU State Aid
EU State Aid is a mine-field of legislation covering most government support for UK businesses. The main impact will be on those businesses claiming R&D tax credits on innovation costs to reduce their tax bill or generate refunds. Crucially, JRS is NOT state aid, but most other forms of COVID-19 support are. This is covered in detail here by my colleague Mark Pryce. A must read for those intending to claim R&D Tax Credits to help their tax cashflow.
A loan is a loan. Yes, unbelievably, I have had conversations with a small number of people who seem to believe that the Government backed Bounce-back and CBILS loans do not need to be repaid or “will be written off anyway”. The Government is considering creating a “bad bank” to efficiently manage and collect impaired COVID-19 loans. Given the unprecedented magnitude of taxpayers-funded support, I doubt that the Government or Banks will be going easy on collection of loans any time soon.
The information in this blog should not be regarded as financial advice. This is based on our understanding on 17 June 2020. Laws and tax rules may change in the future.