Experts have warned that the government is set to clawback money from people who have made fraudulent claims under the furlough scheme.

The Coronavirus Job Retention Scheme was first launched by Chancellor Rishi Sunak in March, to enable employees to be paid 80% of their wages via a grant while they are not working due to the coronavirus crisis.

An investigation has now been launched by HMRC, into companies and individuals who it believes have fraudulently made claims through the scheme which has paid out over more than £27bn.

This comes after the reported arrest of a man on suspicion of defrauding the government’s furlough scheme, out of nearly half a million pounds, reports Wales Online.

Leading tax and advisory firm Blick Rothenberg say the case could just be the tip of the iceberg.

Fiona Fernie, a tax dispute and resolution partner at the firm t old Wales Online : “HMRC has started investigations into companies and individuals that it believes have fraudulently made claims under the Coronavirus Job Retention Scheme (CJRS), which has paid out more than 27bn.

She added: “The Government now intends to clawback as much money as possible from those whose claims were wrong.

"Nobody who has received these grants should be complacent, the proposals for clawback are not confined to instances where the claim was fraudulent – it applies to cases where there has been a lack of proper care as well.

"Now is the time to ensure that claims under the CJRS are accurate.”

Fiona said: “The Government is proposing that the grants are taxable so that where the recipient should not have been entitled to the grant in the first place or has used the funds inappropriately, the full amount of the grant is subject to income tax at a rate of 100%.

"This will effectively clawback the entire amount of the grant. The regime is retrospective – applying to all grants made under the scheme.

"Legislation has been drafted with a view to it being enacted as part of Finance Act 2020 which is expected to become law later this month (July 2020).

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She added: “Given the number of changes there have been to the scheme since it was first introduced, there are likely to be a significant number of cases where people have inadvertently made incorrect claims and the repercussions could be long-lasting.

"Imposing the clawback by way of treating the grant as taxable allows HMRC to impose its normal investigation, assessment and penalty regime to wrongly made claims.

"This means that HMRC will be able to assess the tax due (and thereby impose the claw back) within four years after the grant was made in the case of an innocent error, six years if the error was careless, and twenty years if the claim was fraudulent.

"In cases of fraud HMRC may prosecute and in certain circumstances companies and individuals may be treated as ‘deliberate defaulters’ and be publicly named on HMRC’s website. In some cases, HMRC may involve the police.

She added: “It is likely to be a major problem for some who are investigated and receive assessments. Once the assessment is issued, the burden of proof will be on the taxpayer to show that it is wrong.

"A combination of the lack of clarity in certain aspects of the detailed rules of the scheme, and the length of time which may elapse before an HMRC investigation is complete, may make it very difficult to prove entitlement to the grant. It is therefore vital that the accuracy of claims is considered now.”

Fiona said “HMRC have received over 3,800 reports of fraudulent claims under CJRS and this case shows they are already taking action in the most obvious cases of misuse. HMRC will always investigate complaints and tip-offs which suggest that the system has been abused.

"It is only right and proper that those who have made false claims should be caught and penalised. However, not all such complaints have substance and HMRC will be wary of the possibility that the complaints are themselves untrue and represent a backlash from employees who have lost their jobs.

"HMRC will also be sensitive to the possibility that some of the incorrect claims are merely mistakes rather than carelessness or deliberate abuse.”

She continued: “Nonetheless businesses will be required to notify HMRC if they know (or discover) that they have received a grant to which they were not entitled. Penalties will apply for failure to notify. Companies should therefore carry out a review now and make corrections to any claims they discover to be incorrect prior to the deadline for the first obligation to self-declare in order to avoid penalties.

"The timescale is relatively short – that deadline is 90 days after Royal Assent of the Finance Act and Royal Assent is normally around mid to late July.

"The proposed deadline in the first draft of the legislation was 30 days after Royal Assent, so the current proposal is more generous but the deadline may still be problematic, since the claims calculation is complicated and prior to 5 June 2020 it was not possible to correct errors in claims for one furlough pay period by adjusting a claim in a subsequent period.

"This also represents an additional burden on businesses which will still be struggling to rebuild in the wake of lockdown.”

She added: “It is also a good time for companies to ensure that they have detailed evidence which demonstrates why they considered they were entitled to receive the grants, and how the funds were deployed. Although there remain major areas of uncertainty for establishing eligibility, such records will at least help establish that any error in a claim was innocent. The types of records which will be useful include:

Fiona said: “ Spending the time now to ensure that records are fully maintained should mitigate the impact of an investigation in the future.”