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HMRC has published details of process for repaying overclaimed grants and the applicable penalties it will impose on employers who have misused the Coronavirus Job Retention Scheme and claimed to notify HMRC or repay the grant.

Our research has highlighted the extent of furlough fraud. Our director, Barry Ross, has written for Accounting Web looking at how businesses and accountants can prepare for the inevitable HMRC furlough fraud inspections - see here.

HMRC has said that employers who’ve received monies via the Coronavirus Job Retention Scheme (CJRS) to which they were not entitled can either tell HMRC as part of their next online claim or, if they’re not making any further claims, they must get in touch with HMRC direct.

Employers who’ve overclaimed a grant and have not repaid it, must notify HMRC by the latest of either:

• 90 days after the date the employer received the grant which it was not entitled to
• 90 days after the date the employer received the grant which it was not entitled to keep because of a change in circumstances (e.g. if the employee was no longer employed but the employer continued to receive the grant)
• 20 October 2020

If the grant is not repaid HMRC will recover the full amount of any overpaid grant by making a tax assessment for the amount that the employer was not entitled to. The assessment will be equal to the amount to which the employer is not entitled - including any amounts that the employer has not used to pay furloughed employee wages and associated costs within a reasonable period. HMRC will charge interest on late payments.

The employer must repay the overclaimed grant within the ‘relevant time period’. For sole traders and partners the relevant period ends on 31 January 2022 and for companies, the relevant time period ends 12 months from the end of their accounting period.

Therefore, if HMRC has not made an assessment to income tax to include repayment of the grant already then employers must include it within their 2020-21 tax assessment and HMRC says it will provide detailed notes to guide employers through this.

HMRC states that it ‘will not be actively looking for innocent errors in our compliance approach’. HMRC will not charge a penalty if the employer did not know it had been overpaid a CJRS grant at the time it received it, or at the time that circumstances changed meaning it stopped being entitled to it.

However, if an employer knew they were not entitled to the grant when they received it or knew when they had stopped being entitled to it because of a change of circumstances and didn’t tell HMRC in the notification period then HMRC has made clear it will treat this as deliberate and concealed. This means a penalty of up to 100% could be charged on the amount of the CJRS grant received.

Company officers who knew the company had overclaimed a CJRS grant at the time it was received or knew at such other time when a tax liability arose the claim was overpaid or not used for the intended purpose, can be made personally liable to pay the tax charged on their companies’ overpaid CJRS grants in circumstances where the company is in insolvency and the tax cannot be recovered from the company.

HMRC may also publish details of those who are deliberate defaulters.

For partnerships, HMRC can tax any of the partners or all of them, as liability is joint and severable. If the overclaimed amount has not been repaid and HMRC has not claimed it back as tax, then one of the partners must include it within their 2020-21 tax return.