The government’s furlough scheme has been vital but businesses are being encouraged to double check claims for errors in preparation for HMRC reviews.
“It just needs to be one small error that could be extrapolated over the last year, which could then become a significant number leading to quite significant potential penalties,” says David Francis, partner, and head of tax dispute resolution at Grant Thornton.
The total value of claims made by mid-sized businesses as of January was £9.49bn, according to HMRC data.
“There’s a very strong likelihood that most employers will be reviewed by HMRC,” says Caroline Laffey, tax partner at KPMG UK. “Now is the opportunity, while this information is fresh in at least somebody’s mind within the organisation, to go back and revisit those decisions.”
Employers should carefully document decisions that were made, highlight the methodology those calculations were based on and make sure there’s a clear audit trail of the information, she says.
“This is so when HMRC do call, businesses are able to present and demonstrate that they took reasonable care, they really thought about the legislation and its requirements to comply as best they could,” Laffey added.
As HMRC continues to investigate potential fraudulent and incorrect claims under its new Taxpayer Protection Taskforce, 16 percent of business have not reviewed their initial claims, according to research by Grant Thornton. Out of those who have, 13 percent found errors needing correction.
The biggest challenge for clients making furlough claims has been around access and the quality of data for businesses to make their claims on, according to Grant Thornton’s Francis.
“A lot of the rules were about looking back at data from previous years,” he says. “If businesses don’t have access to that data, they have to consider making some judgements and assumptions which could clearly take a different view from HMRC on what those assumptions and judgments should look like.”
Businesses should ensure they have the capability going forward to hold and process data to help with real time tax information, payroll and making tax digital, according to Francis.
During the pandemic, furlough rules and eligibility criteria has been updated 3 times. “When reviewing the claims, it’s important to know what claim applies to when and how the rules worked in that particular period of time,” says Francis.
“Unfortunately, we had the guidance and we had the directions,” says KPMG UK’s Laffey. “Sometimes, there were anomalies between the two.
“We were raising issues regularly with HMRC to help them understand what the issues are with the guidance and where further guidance is needed.”
Some errors have been caused by a lack of communication between top level management through to what’s happening on the ground, says Francis.
“With larger organisations, the leadership team might say we’re going on furlough and nobody should be working but that message doesn’t always filter through.
“Certainly, if there’s pressures on middle management, they may be asking people to do some work. That will leave an audit trail HMRC will be interested in,” he adds.