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Furlough Errors – HMRC Job Support

Furlough Errors

The scheme was implemented in a very short timeframe due to the urgent financial situation facing many employers and as a result did not benefit from consultation and testing usually associated with new government schemes. By its very nature, CJRS (Coronavirus Job Retention Scheme) is complex as it cuts across multiple parts of business, including HR, payroll, pension and tax. The complexity is further evidenced by the number of changes made early in its existence and the further evolutions of the schemes as the economy reacted to the developing economic crisis, built resilience and started to realise the new landscape.

As attention has now shifted to reviewing claims that have been made in an attempt to identify potential errors, it is useful to understand where errors may have occurred so that the employers can take the necessary remedial actions.

Where can errors occur?

The main area likely to result in errors is the reference pay used to calculate the CJRS claim. While regular salary forms part of the reference pay, discretionary pay such as tips or commission do not.

Whether pay was discretionary or not could be a matter of interpretation, leading to some employers taking a position with which HMRC may not concur.

Another area where errors may have arisen comes from fact that the at the beginning of the lockdown, but before furloughing became a possibility, many employers requested employees to use their annual leave. The interaction between paid holiday, days furloughed, and holiday pay meant that some errors were identified with required adjustments.

Also at the start of the pandemic there was an increase in employees on sick leave  as they self- isolated when displaying symptoms. The basis of claiming statutory sick pay was changed for those employees who had contracted Covid-19 or were self-isolating.

Variable Pay

For furloughed employees with variable pay, such as those on zero hours contracts, the calculation of reference pay was even more complex as it required a comparison with equivalent pay before furlough or the average pay since April 2019 ( or later if employment started after this date).

The number of hours worked for the purpose of calculating the claim also presented an issue, and whether the employee worked during the furlough period added further complexity. In the first stage of CJRS , furloughed employees were not able to work although there were some exemptions. A potential error could have resulted around misinterpretation of the guidance so thar furloughed employees worked in addition to training or employers did not properly track which employees returned to work. From July, part-time working was allowed and so errors could have arisen from incorrectly identifying hours furloughed.


Following the introduction of flexi-furlough, changes were also made to the level of wage claim that could be made, as the initial 80% decreased to 70% in September; also, the covering of employer’s NIC and pension contributions ceased in August. Errors may have appeared in terms of claiming the incorrect rate of employer’s NIC, or by mistakenly claiming employer’s pension contributions when in fact the employee opted out.

In April, the Pensions Regulator (TPR) issued updated guidance on the interaction of CJRS claims, salary sacrifice and pension contributions. The guidance carried two key messages:

  1. An employee cannot sacrifice CJRS pay in exchange for pension contribution. This is because employers must pay the full CJRS payment to the employee. Salary sacrifice can be operated on any top-up pay over the CJRS but this may cause issues in relation to the second key message from
  2. For pensionable pay purposes, a CJRS payment is treated as payment after salary sacrifice, and so may need to be grossed-up to calculate the pay in order to calculate the minimum contributions required under automatic enrolment legislation.

What if claim may be incorrect?

HMRC is understandably already gearing up to tackle incorrect and potentially fraudulent CJRS claims. If HMRC’s estimate of between 5% and 10% for the error and fraud rate in furlough claims is realistic this could equate to at least £3.5 billion of furlough payments that are at risk, so there is large amount at stake for HMRC to check. This explains why significant HMRC resources are expected to focus on this area of reviewing and correcting claims made.

What is furlough fraud?

A fraudulent error may involve employers claiming despite not meeting the scheme’s criteria, for example:

  • Claiming CJRS despite keeping staff working
  • Claims based on false payroll records
  • Intentionally not using the CJRS money as required
  • Claims made by organised criminal gangs

What is HMRC’s response?

HMRC Fraud Investigation Service can conduct criminal investigations with a view to prosecution for cheating the public revenue or fraudulent evasion of income tax. In deciding whether to do so, it would consider HMRC’s Criminal Investigation Policy.

On July 2020, Finance Act 2020 was given Royal Assent and this now gives employers a 90 day deadline to disclose incorrect furlough claims. For future notifications, the excess amount of CJRS payments should then be declared on the business tax return as appropriate with the excess CJRS payments are repaid before the expiry of the relevant 90 day deadline, there is then no requirement to notify HMRC of the incorrect furlough  claim.

Next steps?

Focus on those who knowingly made incorrect claims and failed to notify HMRC ,on whom HMRC may impose significant penalties. For those where HMRC suspects fraud, we can expect in-depth investigations into not just CJRS claims, but also the wider business affairs of those involved.

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