Tenth of all mid-sized firms used furlough scheme ‘incorrectly’

23 April 2021 Consultancy.uk 3 min. read

An analysis of the UK’s job retention scheme has estimated that more than one-in-ten mid-sized businesses may have incorrectly applied for support. Meanwhile, one-in-five firms have not reviewed their initial claim to ensure its accuracy.

As the global Covid-19 pandemic saw countries enter strict lockdowns to prevent its spread, many businesses saw potential sales fall through the floor. With staff marooned at home, and income drying up, many firms might have let swathes of their workforce go, were it not for the UK’s furlough programme.

By April 2020, more than two-thirds of British businesses had already used the government's job retention scheme, and one-in-three companies had put at least 75% of their workforce on furlough, according to a survey published by the British Chamber of Commerce. A year on, the furlough scheme has continued to provide a critical support measure for businesses of all sizes across the country throughout the pandemic. According to data from HMRC, the total value of claims made by mid-sized businesses as of 31 January 2021, was £9.49 billion.

Tenth of all mid-sized firms used furlough scheme ‘incorrectly’

With the furlough programme once again said to be scheduled for scaling back, however, attention has now turned to confirming the validity of these claims. According to a new study by consultants from Grant Thornton, as many as 13% of mid-sized businesses who have reviewed their initial furlough claim found it to be incorrect.

Grant Thornton came to this alarming conclusion by surveying 605 UK mid-sized businesses with annual turnover between £50 million and £500 million. The survey asked about their use of the furlough scheme, and found that 47% of that cohort made use of the scheme during the last year – however, of those roughly 16% are yet to review their initial claim. As such, the number of claims to be incorrect could still prove to be even higher than anticipated – something which will no doubt cause concern among many mid-market players, as HMRC continues to investigate possible fraudulent or incorrect claims.

David Francis, Head of Tax Dispute Resolution at Grant Thornton, commented, “While the majority of claims will have been made in good faith it is inevitable that errors may have been made, however unknowingly, in many applications… With HMRC investigations building momentum and the introduction of the new Taxpayer Protection Taskforce, it’s critical that businesses are checking their claims for potential errors and gathering the necessary evidence that demonstrates the financial context and internal discussions around their furlough application.”

Francis went on to state that HMRC has indicated that it will take “a tough approach to review and enforcement of fraudulent claims,” meaning that if errors are found, businesses should approach HMRC to address the problem, in order to “lessen any potential penalties faced.” As well as the regulatory threats faced, the reputational risk around misuse of the scheme could be significant for companies as they attempt to rebuild revenues in the coming economic recovery – something which means businesses need to clearly document their reviews to demonstrate “active compliance.”