Preparing for HMRC Furlough Audits

With over 10,000 reports to the Furlough Fraud Hotline (mainly by employees being asked to work while furloughed) HMRC are pressing ahead with their audits of businesses.

If a business is found to have fraudulently claimed financial support, they face being issued with a penalty of up to 100% of the amount claimed and potentially additional tax liability. 

So now might be a good time to undertake your own audit, to ensure that you have the required records and information in place. The key things you need to have for each employee that you have claimed for are:

  • Written confirmation of the notification to furloughed employees and the agreement for the employee to return to work and the hours/shifts etc they will be working. Confirmation of the employee’s agreement is also a good idea for best practice and must be retained for five years. Records of the amount claimed, claim period, calculations used and usual hours must be kept for six years. 
  • Confirmation that the employee was employed at the relevant date and an RTI submission had been made for them by the relevant date, or evidence of rehiring or a TUPE transfer.
  • A record of when the employee was furloughed and when they were working  – particularly relevant for flexible furlough claims.
  • Employee earnings used for calculating the claims made for “usual pay” (depending on whether the employee has fixed or variable earnings and taking into account salary sacrifices).
  • Records of the amount claimed, the claim period and claim reference number.
  • Records of what the employee is then actually paid including pension, NI costs and contributions and record of holidays taken in the year
  • Evidence of employees being told not to work during furlough, including emails or out of office notifications. If specifically investigated, it may be wise to get statements from employees to confirm that they were told not to work and did not do so.
  • Evidence of any training carried out to demonstrate that it was just training and not work.
  • Evidence that an employee was clinically extremely vulnerable or high risk and had to shield. 
  • Evidence of caring responsibilities for the vulnerable or for children sent home from school.
  • Evidence of eight weeks’ notice from women returning from maternity leave.
  • Records of any adjustments or corrections made to previous claims.

If, as part of your own self audit, you find that errors have been made or you have overclaimed, it is possible to correct this or repay the overpayment through the HMRC portal. However, you must do this promptly to avoid being issued with a penalty of up to 100% of the amount claimed and prevent additional tax liability.

Information courtesy of Barry Ross, Employment Solicitor