Businesses that abuse furlough scheme may be charged with strict liability offence
The scheme allows businesses to apply for a grant of 80 per cent of each employee's usual wages up to a cap of GBP2,500 per calendar month, with the costs of employer National Insurance and pension contributions being covered by the government. The initial three-month period began on 1 March 2020. It is available only where the employee cannot work due to the closures imposed by the Coronavirus Act 2020 and the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020. A similar scheme is being made available for the self-employed.
However, HMRC is aware that the large sums being made available are likely to attract criminal fraud, as well as abuse by some genuine employers. Its Chief Executive Jim Harra has announced a whistleblowing facility so that abuse can be reported – typically employees continuing to do productive work while receiving furlough pay. HMRC will be able to retrospectively audit the claims made and prosecute fraud, said Harra. Where abuse is detected, it will disallow payments, seek recovery of any overpayment, and consider criminal action against employers.
'There is a real risk that HMRC will seek to bring prosecutions for the offence of failing to prevent tax evasion under the Criminal Finances Act 2017', says Alice Kemp, Associate and Barrister at law firm RPC. Although the corporate offence has been on the statute books since 2017, HMRC is yet to initiate a prosecution for it, even though it is a strict liability offence and intent on the company's part does not have to be proved to obtain a conviction. It is necessary to prove only that there has been criminal tax evasion that was 'facilitated' by a person or entity who performed services for or on behalf of the business are proven.
'Given HMRC's public statement about the risk of abuse to the furlough system, it is likely that businesses will now be expected to act to mitigate the risk of tax evasion', commented Kemp. 'Businesses should also take this opportunity to review carefully their policies, procedures and controls around employee wages to ensure that they have “reasonable preventative procedures” in place to address risk of tax evasion.'
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