Coronavirus Job Retention Scheme: Tribunal rules grants must be repaid

The First-tier Tribunal has upheld HMRC’s ‘claw back’ of CJRS grants – what are the potential implications for other employers?

The First-tier Tribunal has upheld HMRC’s ‘claw back’ of CJRS grants

The First-tier Tribunal (FTT) upheld HMRC’s right to ‘claw back’ Coronavirus Job Retention Scheme (CJRS) grants where a “clear bright line” requirement of the CJRS rules was not met. Whilst HMRC’s published guidance states that they “will not be actively looking for innocent errors” as they review CJRS claims, this case is a clear indication that HMRC are applying a strict interpretation of the rules. Grants will be reclaimed where the technical rules are not being met even where the employer is able to demonstrate that they acted in the ‘spirit’ of the scheme.

What happened?

In Carlick Contract Furniture Ltd, two individuals commenced employment with the company on 24 February 2020. This was just after the cutoff date for the company’s February payroll, so their pay for both February and March was processed in the March payroll run. This was reported to HMRC on a Real Time Information (RTI) return on 25 March 2020 with payments processed the following day.

On 20 March 2020 the Chancellor announced the CJRS to protect employment during the coronavirus pandemic. Accordingly, the employer furloughed those individuals and claimed grants in respect of the relevant salary costs.

However, to be furloughed under the first version of the CJRS (CJRS1), one of the conditions which had to be met was that the relevant employee was included in an RTI return submitted to HMRC on or before 19 March 2020 (i.e. before the CJRS was announced).

Amongst other conditions, the second version of the CJRS, which introduced ‘flexible furlough’ (CJRS2), required that furloughed workers were included in a valid claim submitted under CJRS1.

These requirements were intended to prevent exploitation of the scheme through employments created solely to claim grants, or fraudulent claims in respect of fictitious workers.

HMRC’s income tax assessment and the employer’s appeal

Following a compliance check, HMRC raised income tax assessments on the employer to ‘claw back’ the grants relating to the relevant employees claimed under both CJRS1 and CJRS2.

This was on the basis that those employees were not included in an RTI submission made on or before 19 March 2020 and, therefore were not eligible to be furloughed under CJRS1 or CJRS2.

The employer appealed HMRC’s assessments and made several arguments in support of their actions:

  • Given the rapidly changing economic, business, and legislative environment, all reasonable efforts were made to follow the changing rules as best as the company could;
  • The relevant employees were genuinely employed prior to the announcement of the CJRS and, as such, it would be contrary to the purpose of the CJRS if the employer was unable to access the scheme due to a technicality; and
  • The relevant claims were made “in the spirit that the support was intended”, and allowed the company to protect the relevant individuals’ employments for as long as was possible.

What did the FTT decide?

The Tribunal Judge conceded that he had “every sympathy” for the employer but decided that HMRC were correct to raise the assessment.

The FTT reiterated its role in adjudicating on the law and that where there was a “clear bright line to determine eligibility”, there was no scope for the arguments made by the employer in respect of the spirit of the scheme.

Why does this matter?

Employers made CJRS claims based on evolving legislation and HMRC guidance at a time of significant economic and social pressure. This increased the risk of errors.

Some aspects of HMRC’s CJRS guidance left room for interpretation and therefore Inspectors might accept an employer’s approach that differs from HMRC’s own view of the rules, provided it is supportable. However, this case is a reminder that some CJRS qualifying conditions were unambiguous, and failure to meet those requirements – even due to oversight and where it appears that affected claims were within the spirit of the CJRS – will result in the relevant claims being repayable.

Employers who have yet to review their CJRS claims should ensure they can demonstrate that reasonable care was taken to comply with the rules, justify their positions in areas that were open to interpretation, and show that they met all “clear bright line” conditions in full.

For further commentary on CJRS compliance, please see our previous articles on the risk of furlough fraud, disclosing CJRS grants in company tax returns, and HMRC’s approach to correcting CJRS errors.