Furlough alert: Workers face ‘financial nightmare’ as HMRC ‘clawback’ payments – act
Furlough payments will end from September 2021 as Rishi Sunak, along with the wider Government, confirmed coronavirus related support measures would be wound down from the autumn. The furlough scheme has helped keep millions of workers and businesses afloat during the pandemic but as the winter approaches, ill-prepared Britons may be hit by costly HMRC demands. Nigel Morris, an employment tax director at MHA, warned this could turn the furlough “blessing” into a “major administrative and financial nightmare.”
Mr Morris said: “The furlough scheme was a great success in preventing mass redundancies until the economy rebounded. At its peak 8.9m people were on furlough; the latest figure is 1.9m. The overall cost (as of mid-July) is around £67.4billion and is due to top £70billion, which is nearly double the total UK defence spend in 2018/19! A staggering amount of money and for the most part good value.
“Yet the scheme was complex from the start and kept getting more complicated with various amendments and extensions made by the Government. Administrative challenges were usually overcome but at a high cost to many employers. Many now fear innocent errors and incorrect claims will be pursued for many years by HMRC.
“The advice to all businesses, as the scheme ends, must be to review all their furlough claims and ensure that if they have over-claimed, they make arrangements to pay HMRC back as soon as possible. This should help to avoid interest and penalties. HMRC and the National Audit Office estimate between five percent and 10 percent of the total furlough money claimed could represent overclaims.”
Mr Morris went on to break down how HMRC could target workers: “Employers should also ensure that their auditors, bankers and investors are aware of any potential clawbacks. If the clawbacks are not budgeted for, companies could end up in breach of borrowing and covenant requirements when they are called on to pay HMRC off. Furlough was a blessing at the time: you don’t want it turning into a major administrative and financial nightmare down the line.
“The most common administrative slip up we have seen is where companies have forgotten to work out claims for flexible furlough on calendar days (365 per annum) and have instead used working days (260 per annum) which they might use for the rest of the payroll.
“Furlough was enough of a success that there is definitely merit in the unions’ suggestion for the creation of long-term version of it to guard against another pandemic or perhaps a major economic downturn. Furlough 2.0 could draw examples of best practices from Europe, where these types of schemes already exist. A ‘permanent’ scheme would also help businesses to plan with added assurance, and give confidence to markets and funders should the unthinkable happen again.”
New figures from HM Treasury highlighted that businesses already appear to be acting proactively in regards to the furlough scheme. Today, HM Treasury confirmed British businesses which have been “buoyed by the UK’s economic recovery” have returned £1.3billion in furlough cash to the Government.
Today’s data showed firms who have overclaimed or decided they no longer need payments received through the Coronavirus Job Retention Scheme handed back £300million in the last three months. In total, they have repaid £1.3billion to HMRC since July 2020 through adjustments to claims and the voluntary disclosure service, which will continue into 2022.
Rishi Sunak commented on these results: “This Government stepped in to help when people needed it most, supporting nearly 12 million jobs through furlough. This worked, nearly two million fewer people are now expected to be out of work in the UK than previously feared.
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“Now with our recovery underway it is heartening to see that £1.3billion in furlough grants have been returned as the economy recovers.”
HMRC also confirmed it is “cracking down on those who have fraudulently claimed furlough through its 1,250-strong Taxpayer Protection Taskforce.”
HM Treasury detailed that, thanks to the vaccination programme and the Government’s roadmap out of the pandemic, the number of people on furlough has fallen to a record low of 1.6 million. Around 340,000 people left the scheme in July, with more than a third aged between 18 and 34 – a “clear sign the Government’s Plan for Jobs is working.”
According to the Government, the furlough scheme has protected nearly 12 million jobs and supported more than 1.3 million businesses, with 910,000 jobs in Scotland protected, 470,000 jobs in Wales and 280,000 jobs in Northern Ireland, securing livelihoods in communities across the United Kingdom.
However, many experts warn the economy is likely to take a hit as the furlough scheme ends, especially as inflationary threats and rising costs loom.
Interactive investor warned the winding up of the scheme threatens to add further pressure to household finances atop the triple threat of inflation, rising energy costs and covid uncertainty. The company also noted consumers could face an additional challenge of reining in spending which has escalated since the lockdown commenced.
In a poll of 801 interactive investor website visitors between September 3 and 6 2021, 40 percent of respondents said they spent…
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