Thousands of companies that made claims under the Coronavirus Job Retention Scheme but did not keep proper records will be the first to be investigated by HM Revenue & Customs.

HMRC is currently targeting employers who have either inadvertently or fraudulently claimed too much or wrongly through the Coronavirus Job Retention Scheme.

The chief executive of HMRC, Jim Harra, recently revealed that it has so far identified 27,000 ‘high risk’ cases that contain disparities with the data they hold.

During an appearance before the Public Accounts Committee in Parliament, Harra also revealed that up to 10% of furlough money could have been wrongly given, equating as much as £3.5bn, based on their own risk assessments.

Fiona Fernie, a tax dispute resolution partner at Blick Rothenberg, said: “HMRC are investigating widespread fraud and are looking into thousands of claims that were made under the scheme and unfortunately businesses that did not keep proper records are the ones that are being scrutinised the most.”

She added: “Most have probably done nothing wrong, but a lack of records will cause suspicion and companies who have made claims or are going to do so under the extended scheme need to check both past and future claims and keep detailed records supporting those claims so that they can provide appropriate evidence if HMRC queries them.

“Within days of the first ‘amnesty’ deadline passing for repayment of amounts overclaimed under the CJRS, the tax and advisory firm says that HMRC have already swung into action investigating claims where they believe that employers have claimed the wrong amount or were ineligible to claim.

“The deadline for making the repayments was 20 October 2020 in respect of claims received prior to 22 July 2020 and for claims received after that date the deadlines for making repayments of amounts incorrectly claimed are 90 days after receipt of the funds.”

Fernie says that it is essential that employers continue to check historical CJRS claims to ensure both the numerical accuracy of the claims and that they were justified in making them since the more of these deadlines are missed the greater the likelihood of HMRC imposing significant penalties.

She continued: “With the extension of the [furlough] scheme until 31 March 2021, and the increased flexibility of the scheme, it is important that both employers and employees are fully aware of the parameters within which the scheme operates, and ensure they are compliant.

“Mistakes in past claims should be corrected as soon as possible and great care should be taken in making future claims.  Whilst not looking to punish honest mistakes too harshly, all amounts overclaimed will be repayable and HMRC will come down heavily on those who abuse the system.”

The tax expert says it is imperative that businesses keep specific records and those required by HMRC include:

• the amount claimed and claim period for each employee;
• the claim reference number for the records;
• calculations in case HMRC need more information about the claim;
• usual hours worked, including any calculations that were required, for employees flexibly furloughed;
• actual hours worked for employees flexibly furloughed.

It would also be sensible to have records such as:

• Financial forecasts which support the reasons for making the claim;
• Evidence that employees furloughed and in respect of whom claims were made, would have continued in employment if the pandemic had not happened;
• Evidence that the appropriate amounts have been paid to furloughed workers;
• Communications with employees notifying them they were being furloughed and the responses from employees providing their agreement;
• Written instructions to furloughed employees confirming the need for them to stop working during the period when they are furloughed;
• Evidence that non-furloughed employees have been made aware that they cannot involve furloughed employees in work;
• Details of the procedures used in managing the changes in the implementation of the scheme from August; and
• Details of the procedures for bringing back employees from furlough.

“Arguably it would also make sense to have records demonstrating the reduction in workload for those who are flexibly furloughed, to support the rationale for the claims,” Fernie added.