Coronavirus Job Retention Scheme: new guidance on correcting errors

HMRC have updated their guidance on repaying overclaimed Coronavirus Job Retention Scheme (CJRS) grants. The new guidance is relevant to employers correcting historical errors and ensuring their compliance position is robust. The opportunity to offset is much broader than previously. HMRC now accept that certain historical underclaims may be deducted by employers when calculating any repayments due for overclaims. However, for an amount to be available for offset, the employer must have paid it to the furloughed employee within a reasonable time. HMRC consider this to be within 12 months of the end of the accounting period in which the underclaim was made. As HMRC and auditors review claims, it is increasingly apparent that errors have resulted in both underclaims for some employees, and overclaims for others, in the same claim period. Employers need to move quickly to ensure they can maximise their ability to offset under and over claims under HMRC’s new approach.

Employers’ obligations

Employers who claimed CJRS grants must ensure those claims were based on a reasonable interpretation of HMRC’s then current guidance and prepared with reasonable care. As HMRC and auditors review claims it is increasingly apparent that, in many cases, the same claim contains errors that result in overclaims for some employees and underclaims for others.

HMRC are encouraging employers to self-review their claims and correct any errors. Separately, HMRC are carrying out a series of reviews which will last until at least March 2023.

Correcting CJRS overclaims

Broadly, any overclaims identified should be notified to HMRC within 90 days of the date on which they arose to avoid penalties.

Employers must repay HMRC where a CJRS claim was overstated, or a claim subsequently became excessive (e.g., where it is discovered that a furloughed employee returned to work sooner than expected).

CJRS grants must also be repaid to HMRC if:

• The employees to whom the claims relate did not receive at least their minimum furlough payment entitlements; and
• The employer does not make good any shortfall in the employee’s minimum furlough pay entitlement within 12 months of the end of the accounting period in which the underpayment arose.

The requirement to make good within 12 months of the year end means employers need to move quickly to ensure they do not lose this ability and instead are required to repay the full amount claimed for the employee concerned.

Correcting CJRS underclaims

For claim periods that began on or after 1 November 2020, any underclaimed CJRS grants had to be claimed within, generally, 28 days of the end of the relevant calendar month.

Until recently, HMRC would then only allow underclaims to be corrected after that time if they accept the employer has a ‘reasonable excuse’ for being late.

HMRC’s new guidance on offsetting underclaims against overclaims

HMRC’s new guidance also allows employers who identify any errors in their claims to offset overclaims in a particular claim period against any underclaims in the same period, reducing the repayment which would otherwise be due to HMRC. In some cases, this could make a significant difference to the amount repayable to HMRC. It is therefore important that employers consider this new guidance as they review their claims and consider corrective action.

What should employers do?

As we know, CJRS claims were made by employers at a time of significant challenge whilst HMRC’s guidance was changing on a regular basis. This increases the risk of errors having occurred.

Employers who have yet to review their claims should therefore ensure that they check all aspects of their claims, can demonstrate reasonable care was taken complying with the rules, and can justify their positions.

Where errors are identified:

• Consideration should be given as to whether any underclaims can be offset against any overclaims in the same period; and
• Where an historical underclaim resulted in a furloughed employee being underpaid, the necessary top up should be paid within 12 months of the end of the relevant accounting period (otherwise the relevant grant will be repayable to HMRC

Employers should move quickly to ensure that any underpayments to furloughed workers are identified and corrected before the 12 month window closes, to ensure they are not liable to repay the full grant claimed for the employee for the claim period.

KPMG has asked HMRC to confirm what steps employers should follow where they have repaid an overclaim without offsetting any eligible underclaims.

We will publish an update in due course.