Coronavirus job retention scheme: you may not retain the money

In February 2022, the Public Accounts Committee (“PAC”) published an update on the costs of the COVID-19 pandemic.

PAC found that the Coronavirus Job Retention Scheme (“CJRS”) alone is anticipated to result in a loss of around £5.3bn due to fraud and error. This equates to 8.7% of all monies issued under the CJRS. PAC currently have an open enquiry into HMRC's 2020-2021 Annual Resource Accounts due to significant amounts of fraud and error, including that arising from the CJRS.As a result, HMRC are coming under increasing pressure to be seen to recover fraudulent and erroneous payments that it made under the CJRS. In one of the first appeals to the First Tier Tribunal (Tax Chamber) (“FTT”) regarding the CJRS, HMRC have recently had some success.

Last month, the FTT handed down judgment in Carlick Contract Furniture Limited v The Commissioners for Her Majesty's Revenue and Customs. HMRC had issued an assessment to Carlick in the sum of £22,018.97 on the basis that payments made in respect of two of its employees were not “qualifying costs” pursuant to the CJRS, as Carlick had not included the two employees within the real time information (“RTI”) that needed to be submitted to HMRC for PAYE purposes by 19 March 2020. Carlick explained that the reason for not having done so was that the two employees commenced their employment after the company's deadline for payroll approval for February 2020 and so were then included in the following RTI submitted to HMRC on 25 March 2020, in line with its internal payroll procedures.

Carlick submitted two arguments to the FTT in support of its position:

  1. The company had endeavoured to follow the rapidly changing guidance concerning the CJRS. The original guidance had referenced an employment commencement date of 28 February 2020 in order for the CJRS to be applicable, however this was subsequently amended to 19 March 2020 in an attempt to prevent employees that had recently changed employment being missed from the CJRS. The company therefore asserted that it had acted reasonably in including the two employees within its claims under the CJRS.

  2. That the payments made in respect of the two employees were in the spirit of the CJRS as without those payments, they would have been made redundant from their positions at the start of the pandemic.

HMRC acknowledged that the two employees had been employed prior to 9 March 2020 but contended that the law on this area was clear: as Carlick had failed to notify HMRC of the two employees by 19 March 2020, they did not qualify for the CJRS.

Unfortunately for Carlick, and no doubt many other companies in similar circumstances, the FTT found in HMRC's favour, though a slight reduction in the amount assessed was made. The FTT expressed its sympathy for Carlick but held that the legislation concerning the CJRS did explicitly require notification to HMRC of payments of earnings to employees by 19 March 2020 in order to qualify for the CJRS and in this particular case, that had not been done.

The FTT also held that it had no jurisdiction to consider arguments relating to the reasonableness and fairness of whether the claims that Carlick had made in respect of the two employees were in the 'spirit' of the CJRS, given the “clear bright line to determine eligibility for the scheme”. This judgment, and in particular the jurisdictional refusal to entertain subjective arguments, will greatly assist HMRC in its recovery of erroneous CJRS payments.

Conversely, this will be a significant blow to businesses that acted in good faith in respect of the CJRS and hoped that the FTT would be able to provide a moral lifeline in the continuing uncertain economic climate. Accordingly, if your business is in a similar position, it would be prudent to take legal / tax advice to determine whether it would be more beneficial to you to seek an agreement for repayment with HMRC as opposed to incurring the time and expense of pursuing the matter through the FTT.

If you require further information or specific advice on the CJRS, please contact Simon Ellis or Amy Platt.

The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.

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