Recommendation 5

HM Government Rejected

5: PAC conclusion: We are concerned that in the absence of effective criminal and civil sanctions there is little incentive for those who overclaimed COVID-19 employment support to make repayments. 5a: PAC recommendation: HMRC should increase the number of employers it penalises for making excessive claims; and incentivise other employers to repay grants they have wrongly claimed. 5.1 The government disagrees with the Committee’s recommendation. 5.2 In line with the recommendation, HMRC will continue its compliance activity on COVID-19 schemes and consider whether penalties can be charged within the legal framework. However, HMRC is unable to pre-determine case outcomes and as a result, is unable to determine whether there will be an increase in penalties in the future. 5.3 Legislation was included in Finance Act 2020 to enable HMRC to carry out compliance activities in relation to those claiming support from the COVID-19 employment support schemes. The legislation specifically provided that penalties would only be charged where grants were deliberately overclaimed. The compliance approach, supported by Parliament, was designed to recognise that claimants might make mistakes given the new and changing obligations under the schemes. 5.4 The test for charging penalties in the COVID-19 employment schemes is for HMRC to show, on the balance of probability, that the person knew either at the point of claim that they were not entitled to the Covid grant, or that they had ceased to be entitled to the grant. Penalties can only be applied where it is lawful for HMRC to issue them, and there is sufficient evidence of deliberate behaviour that could be shown in a tribunal or in court. 5.5 Since the start of compliance activity on the HMRC-administered COVID-19 employment support schemes, HMRC has charged over £12.8 million in penalties in addition to recovering over £1 billion of overclaimed support through its compliance checks. Claimants also have the chance to put things right, without fear of sanctions by repaying their claim, and HMRC has received over £1 billion in repayments outside its compliance checks. 5b: PAC recommendation: HMRC should set out, in its Treasury Minute response, its estimates of the number and value of furlough claims where it suspects, but cannot prove, that employers intentionally overclaimed; and its latest data on the amounts it has recovered from those employers. 5.6 The government disagrees with the Committee’s recommendation. 5.7 HMRC already publishes an estimate of the value of fraudulent claims, and data about the amounts recovered from employers who made incorrect claims, which partly meets this recommendation. 5.8 HMRC is unable to identify or pre-determine behaviours that resulted in an overpayment based on the risk data alone and can only do so through evidence gathered during its compliance checks. Therefore, HMRC cannot set out an estimate of instances where it suspects, but cannot prove, that employers have intentionally overclaimed. 5.9 HMRC opens compliance checks into COVID-19 claims where it identifies there is a potential overpayment of the grant. This is based on a risk profile developed through intelligence gathered and bulk data analysis. 5.10 HMRC’s compliance approach is to support claimants who have made honest mistakes to come forward without fear of penalty and to penalise those who deliberately set out to misuse the schemes. 5.11 The government was clear when it introduced the legislation in Finance Act 2020 that HMRC would not penalise those who had made honest mistakes when claiming COVID-19 scheme grants. In this situation HMRC can recover 100% of the overpaid grant to put things right. 5.12 Up to February 2023, HMRC has undertaken over 58,000 compliance interventions into the furlough scheme and recovered over £762 million.