Coronavirus Job Retention Scheme: HMRC’s new positions on errors

Does HMRC’s recently published approach to common CJRS errors mean you need to correct your claims or payments made to furloughed employees?

Does HMRC’s recently published approach to common CJRS errors mean you need to correct you

HMRC have published new questions and answers on common errors that arose in Coronavirus Job Retention Scheme (CJRS) grant calculations. Importantly, the newly published positions set out when HMRC require employers to amend their claims and when, provided certain conditions are met, HMRC accept that some specific types of error do not need to be corrected. This article summarises HMRC’s key compliance positions and what employers who claimed CJRS grants should do now.

Employers must repay CJRS grants where a claim was, or subsequently became, excessive. Grants must also be repaid if the relevant employees received less than their minimum furlough payment entitlements and the employer does not make good the shortfall within 12 months of the relevant accounting period.

HMRC, working with tax and accounting bodies, have published Common errors in the calculation of CJRS grants: questions and answers to help employers review CJRS claims and payments made to furloughed employees.

Whilst not exhaustive, the new guidance indicates HMRC’s approach in certain areas where employers calculated CJRS grants using different methods to those set out in HMRC’s guidance.

What are the key points?

The new publication sets out 14 questions and answers on CJRS compliance. In summary, key HMRC positions include that:

  • Employers don’t need to correct CJRS claims prepared in line with incorrect HMRC advice provided that advice was unambiguous, based on a full understanding of all relevant facts, and can be evidenced/verified by both the employer and HMRC;
  • Errors must be corrected if the employer failed to take reasonable care in following the relevant HMRC guidance, and where HMRC identify non-deliberate errors during an enquiry these may need to be corrected;
  • Underpayments to variably paid workers must be corrected where an employer did not base furlough payments on the higher of (i) the employee’s average pay; and (ii) their pay in the corresponding calendar period in the previous year; and
  • HMRC do not accept that the fixed pay method could be used on or after 1 September 2020 to calculate CJRS claims and payments for employees who are paid a fixed annual salary plus significant and variable amounts of non-discretionary payments or overtime (meaning that any associated errors must be corrected).

Why the new HMRC questions and answers matter

Employers who claimed CJRS grants have an obligation to ensure they were based on a reasonable interpretation of HMRC’s prevailing guidance when submitted, and that they were prepared with reasonable care.

Where relevant, HMRC expect Senior Accounting Officers to certify that appropriate tax accounting arrangements were in place for CJRS claims and, as the Carlick Contract Furnishing Ltd case demonstrates, all claims are potentially subject to HMRC review. However, HMRC encourage employers to self-review and subject to the limited exceptions set out in the new guidance, voluntarily correct any errors identified.

This clarification of HMRC’s approach to certain common errors in CJRS claims gives welcome certainty on which of those errors need not be corrected, as well as which common errors must be put right, and should also let businesses give stakeholders such as employees, suppliers, customers, and investors comfort that claims are robust.

What employers should do now

Employers who have yet to review their CJRS claims should do so now taking account of HMRC’s recently published positions on common errors. Employers who have already reviewed their claims, but did not discuss their approach with, or disclose any errors to, HMRC should revisit their claims to confirm whether they are in line with HMRC’s new positions and, if not, disclose and settle any common errors which HMRC have confirmed must be corrected.

Where employers intend to rely on confirmation in HMRC’s new guidance that a specific type of common error need not be corrected, they should ensure they can demonstrate that any relevant conditions (e.g. reliance on unambiguous advice from HMRC) are met. Any errors identified, or approaches taken by the employer which are not supported by a reasonable interpretation of the relevant HMRC guidance, which are not covered by the new guidance should be disclosed and discussed with HMRC.

HMRC might accept an employer having calculated CJRS grants based on a reasonable approach that differs from HMRC’s own view in areas that are open to interpretation. However, as Carlick Contract Furnishing Ltd (see our recent article) makes clear, failing to meet a clear ‘bright line’ requirement, even though the affected claim might arguably be within the spirit of the CJRS, can result in the relevant claim being repayable unless the employer can demonstrate that it relied on incorrect advice from HMRC (see above).

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