Tax crackdown on coronavirus support payments

Businesses and employers who make bogus claims for coronavirus support payments face a 100% clawback of monies received under new powers being added to the current finance bill.

As well as such support payments being taxable as income in the ordinary way, there will be a 100% tax charge imposed on bogus claims for support payments where it can be shown that the recipient was not entitled to the money, plus penalties may be charged for deliberate non-compliance with the rules.

The legislation affects individuals, businesses, partners in partnerships and employers who receive or apply for a payment from:

• Self-Employment Income Support Scheme (SEISS)
• Coronavirus Job Retention Scheme (CJRS)
• the Small Business Grant Fund (SBGF), the Retail, Hospitality and Leisure Grant Fund (RHLGF), the Discretionary Grant Fund (DGF), or their parallel schemes in the devolved administrations
• other payments made by public authorities to businesses in response to COVID-19
• any other COVID-19 support scheme specified or described in regulations made by the Treasury

Grants are treated as income where the business is taxable, as they are covering income that was lost during the lockdown. Whether or not any tax will eventually be paid will depend on whether a business makes a profit.

Businesses in receipt of CJRS grants can deduct employment costs as normal when calculating taxable profits for Income Tax and Corporation Tax purposes.

Individuals with employees that are not employed as part of a business (such as nannies or other domestic staff) are not taxable on grants received under the scheme. Domestic staff are subject to tax and NICs on their wages as normal.

Clawback provisions

However, the key concern is that income tax can be charged on the recipient of a SEISS or CJRS payment to which they are not entitled, or where a CJRS payment has not been used to pay furloughed employee costs. HMRC will also charge a penalty in cases of deliberate non-compliance.

CJRS

The guidance accompanying the Treasury Direction under Coronavirus Act 2020 s 76 is not as comprehensive as it could be, leaving some issues open to interpretation.

So a view taken by an employer or a self-employed person in good faith about a claim for CJRS or SEISS could later be disputed by HMRC, leading to a possible repayment of a grant.

HMRC has previously said it has received numerous whistleblower reports of support payments being wrongly claimed, or where CJRS payments were not being used to pay employees. It will use its information and inspection powers to check for overpayments.

Powers in the bill will also allow HMRC to make an officer of an insolvent company jointly and severally liable for any CJRS payment to which the company was not entitled, or any CJRS payment which was never intended to be used to pay employee costs, PAYE, NICs and make pension contributions in certain circumstances.

Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled and where the company enters insolvency, and where HMRC can show that there is a serious risk that the company will not be able to pay the income tax assessment.

The measures added to the finance bill have yet to be approved by Parliament, so could change before the bill receives Royal Assent.

CJRS claims and corrections under flexible furlough

HMRC has launched an online facility to enable employers to correct overclaims of CJRS.

HMRC can be told about an overclaimed amount as part of the next claim, with the new claim being adjusted automatically to reflect the overclaim.

Where an error has resulted in an underclaimed amount, the employer will need to telephone the HMRC helpline to amend the claim, rather then adjust the next claim.

For more information on CJRS, check our Flexible Furlough article.

Fraudulent claims

Even before the finance bill becomes law, HMRC has already shown it is willing to crackdown on fraudulent claims under existing legislation.