Given the government’s quick need to provide wage support measures for the employer, trade union on a collective agreement, and furloughed employee impacted by the unforeseen COVID-19 pandemic, the pace for introducing the Coronavirus Job Retention Scheme (CJRS) was in a rush and at such a moment of crisis, was updated between short spans of time at some point. It was therefore inevitable for employers to make mistakes, particularly in overclaiming funds, for various reasons.
From August 2020 until now, HMRC has been doing compliance checks, looking into the employers who were most likely to have made mistakes under the CJRS and doing consultation processes for getting the redundancy payments back. Penalties are bound to happen, and the justification of the employers’ errors relies on their reasons, whether deliberate or non-deliberate, which this article will explore further.
In this article, we provide a concise overview of the scheme, common reasons employers make a claim of excessive amounts, the penalties imposed for failing to notify HMRC, how to amend their mistakes, and how to pay overclaimed CJRS grant back.
Coronavirus Job Retention Scheme (CJRS) Overview
First announced on 20 March 2020 as one of the state aid salary sacrifice schemes, CJRS claims wage support intends to provide temporary relief to employers and recruitment agencies in the face of financial impacts brought by the COVID-19 pandemic, so they continue enforcing employee rights and avoid giving an unfair dismissal or volunteer work that may lead to them incurring administration charges from any employee. It also pays for employers’ NICs and pension scheme.
This government guidance allows employers to use the scheme and retain their employees and/or employees who were employed who would’ve been in a furlough arrangement and unemployed for the rest of the crisis or put in an annual leave due to their employers’ lack of funds to even pay for their staff costs or employment costs.
All these extensions were fraught with updates, especially the amount of grant employers receives. Employers are able to claim up to 80 per cent of the national minimum wage costs up to a cap of £2,500 each month for every employee until 30 June 2020, in which employers had the freedom to choose whether they top-up to cover the remaining wage or not.
The grants were then gradually tapered down to the succeeding months. In July 2020, the concept of flexible furlough employees was introduced when HMRC recognised that different entities were impacted differently by the pandemic, decreasing the grant to 10 per cent.
At this point, office holders were allowed to mix furlough leave and work periods without minimum furlough period, given there was employee consent. Furlough employees can take part in new furlough terms of employment—work at any length of time or work pattern.
This means that if they normally are employees on fixed term or follow full-time working time regulations for a company for five working days a week, they could work for three days and be in furlough agreements for two days, almost similar to a part time basis or those on commission payments and piece rate payments.
Since the introduction of flexible furlough employment contract in July 2020, the scheme grant has been capped at 70 per cent, which means a monthly cap for the number of hours not worked was £2,187.50. Claims made were then reduced to 60 per cent by August 2021 to September 2021, which was up to £1,875.
By this time, employers will need to top-up the remaining wage cost up to 80 per cent of their furloughed employees’ normal gross pay or 100 per cent if they choose to. Since changes were implemented with little time given to employers to come to terms with the new employment law, making a claim of excessive funds became rampant, which will be discussed further below.
CJRS pays for employer National Insurance and pension contributions as well. The employer national insurance contributions are paid at a normal rate, whilst pension contributions are only at 3 per cent for the employers’ income above £516 for each month, which is the minimum auto-enrolment employer pension contributions rate. Employer national insurance, on the other hand, is not capped at all.
What Causes CJRS Overclaims?
When the company directors didn’t take conscientious steps to review the claims, it was so easy to overlook the scheme rules, especially when they were claiming for a considerable number of employees on furlough and, at that time, were caught in rapid changes in the regulations. Generally, there were two common reasons for redundancy payments of CJRS funds, which include the following:
- The calculation method that the employer used to work out the wages as per their RTI submission didn’t align with the payroll scheme, which resulted in the difference between the claimable amount and the amount that the employer claimed in their PAYE payroll.
- The employee didn’t receive 80 per cent of their normal wage, including holiday pay, statutory sick pay, and maternity leave/ maternity pay, as what CJRS furlough arrangement required.
Specifically, they may have done any of these below to have committed the abovementioned errors. The following also covers other reasons for overclaiming funds:
- Not being aware of the employment law updates;
- Basing the wage computation on weeks instead of days;
- Using an incorrect reference pay for their furlough employees’ normal fixed term pay;
- Using the 1 April 2020 national apprenticeship minimum wage or national living wage increase as the reference pay when it should have been the salary before 19 March 2020, which was the basis for most;
- Claiming 100 per cent (including the top-up amount) instead of the 80, 70, or 60 per cent cap;
- Using the pre-salary sacrifice arrangements as the reference pay;
- Including in employee’s reference salary the non-contractual bonuses, as well as statutory sick pay, sick leave, holiday pay, family leave, maternity allowance, and other family related statutory leave;
- Incorrectly calculating the employees’ hours when they were flexibly furloughed from 1 July 2020;
- Not paying employees within a reasonable time or at all once they furlough an employee;
- Including non-qualifying employees for their claims, such as those who had stopped working or had zero hours of work.
HMRC’s Compliance Activities for CJRS
Even before the closing of pay period for CJRS in September 2021, the tax authority discovered that a huge amount of claims made redundant happened, running between £3.5bn and £7bn. In March 2021, the chancellor allocated a budget of £100m to trace back and review CJRS claims, which calls for every business and sole trader to check if they were compliant with the rules of the furlough scheme.
Since then, CJRS “nudge” letters have been sent to employers to prompt them to do a large-scale review of their claims, expecting them to notify HMRC once they found errors on their part. Penalties, which will be discussed further below, will depend on the employers’ reasons for committing the error and how quickly they take action. HMRC expects employers to look through the following:
- If their overall claims are larger than their previous filings;
- If the furlough employees they are claiming for qualify for the grant;
- If their Real Time Information RTI submission and claim patterns are consistent.
HMRC has four years to raise an assessment following the year that the employer was assessed. Different time extension rules apply, whether the error was deliberate or due to genuine carelessness. Usually, paying overclaims should be within 30 days unless otherwise they notify and have credible business reasons that they could not pay the said amount within the time frame, in which HMRC will provide them with more leeway of time.
What Are CJRS Failure-to-Notify Penalties?
Once employers were sent nudge letters for an assessment, they were liable to notify HMRC and pay the overclaimed grants within HMRC’s pay period of 90 days, or else, face penalties. But this was not usually the case for employers, especially those that omitted tax planning, resulting in a lot of entities dealing with penalties after the scheme.
Once overclaim notifications to HMRC were not done promptly, penalties depend on the employer’s behaviour or business activities, whether deliberate or non-deliberate. Penalties for deliberate errors are relatively heavy, such that employers already know about their overclaim but choose not to report to HMRC and conceal their actions.
Having found to have been deliberately concealing their situation means they will have to pay 100 per cent of the overall amount they overclaimed, regardless of their reasons for failing to notify. This is a harsh penalty compared to those with non-deliberate reasons.
If the employer is found to be unaware of their error until HMRC sends them a timeframe for paying their overclaim or have discovered errors on their part whilst being caught in business succession rules but missed the notification deadline, their penalty will differ according to whether their late notification was prompted or not and their extent of cooperation with HMRC.
Most of the time, employers fall into the latter part—non-deliberate in notifying HMRC—which means they might not have been aware of the guidance under the scheme. Below are ways employers can amend their CJRS grant overclaims.
How to Amend and Pay Incorrect CJRS Claims
Firstly, employers must review how they calculated their grants in comparison to HMRC’s method. Seeking the help of tax experts or accountants is crucial in this phase as there have been a lot of changes in the regulations since the scheme was introduced, and the employer may end up submitting inaccurate information again.
Furlough pay must be reviewed too. When the employer has made an underclaim, it also means that employees were underpaid compared to their monthly earnings from when they started work until they stopped working.
In this case, HMRC treats the overall claim to be an overclaim unless they gave a top-up payment to make sure that their employees still received 80 per cent of what they should have been paid. If they have not made any top-ups for underpayment or did not keep a record for it, then HMRC will ask them to top up for the wage within a reasonable timeframe, although HMRC, in some cases, allow extensions.
Employers can report their overclaims through self assessment tax returns as well, especially when they have claimed CJRS grants that they are not entitled to. This would work for employee taxes and corporation tax purposes, which HMRC designed for sole traders, companies, or members of limited liability partnerships to repay in full.
Not being entitled to the grant, those within PAYE scheme will be asked to pay an equal to 100 per cent employee taxes of their total overclaim. For companies, their overclaimed grant charge is added to their corporation tax return calculation, not through PAYE schemes.
For the payment, employers will have to present to HMRC the following:
- Corporation Tax Unique Taxpayer Reference number (UTR)
- Employer PAYE UTR number
- Self-Assessments UTR number (for those not registered for corporation tax)
Employers have to make sure they use the right employee number, phone number, contact name, billing address, and other PAYE scheme details to avoid delays in their payment. They can pay to HMRC’s accounts through Faster Payments, CHAPS, or Bacs with their bank account details, including the number and sort code.
Faster Payments are either through telephone or bank account number wherein HMRC receives the payment on the same day or the next, even during bank holidays or weekends. CHAPS are usually processed within the same day if employers send the payment within their bank’s processing times. Lastly, Bacs take a longer time, which is up to three days.
Legal Advice for Settling CJRS Overclaimed Funds
CJRS regulations were rapidly changing at the time, making it inevitable for employers to commit errors in their claims. This makes the calculation of repayments complicated too. Let Legend Financial help. We are a team of tax experts and accountants who have been for years providing individual and collective consultation to a lot of clients with solutions to their tax or business affairs on a daily basis. For your CJRS-related concerns, don’t hesitate to reach us right away!
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The risk to Coronavirus Job Retention Scheme penalties. (9 June 2022). Retrieved from RSM UK: https://www.rsmuk.com/insights
Overview of CJRS. (n.d.). Retrieved from ICAEW: https://www.icaew.com/coronavirus/coronavirus-job-retention-scheme/overview-of-cjrs
Overclaimed Coronavirus Job Retention Scheme payments. (n.d.). Retrieved from Select: https://select.org.uk/SELECT/Website/COVID-19/Employment_guidance/Furlough_and_CJRS/Overclaimed_CJRS.aspx
Coronavirus Job Retention Scheme. (13 October 2022). Retrieved from Gov.UK: https://www.gov.uk/government/publications/coronavirus-job-retention-scheme-screening-equality-impact-assessment/coronavirus-job-retention-scheme
Correcting Coronavirus Job Retention Scheme claims. (n.d.). Retrieved from Att: https://www.att.org.uk/correcting-coronavirus-job-retention-scheme-claims
What is the Coronavirus Job Retention Scheme (CJRS)? (n.d.). Retrieved from Prospect: https://prospect.org.uk/article/what-is-the-coronavirus-job-retention-scheme-cjrs/