The Legal and Human Consequences of Employer Furlough Fraud

“Using money paid by the furlough scheme for anything other than staff wages is against the law” – DWP Spokeperson

On Tuesday this week I called the Department for Work and Pensions (DWP) for comment on a story about employers withholding furlough pay from their employees. The first words out of the press officer’s mouth, before I had even finished asking the question, were: “That would be a crime.”

This choice of words is important. The press officer didn’t say ‘that would be wrong’, or ‘that would be against the rules’, they said “That would be a crime.” By extension this means that an employer who uses money paid to them by the Job Retention Scheme for anything other than to pay staff wages is breaking the law. The following paragraph, taken from the HM Revenue and Customs (HMRC) website, confirms the lack of wiggle-room when it comes to dispersal of furlough pay:

Your employer must pay you all the grant they receive for your gross pay in the form of money. Your employer cannot enter into any transaction with you which reduces the amount you receive. This includes any administration charge, fees or other costs in connection with your employment.”

With any notion of ‘grey areas’ dispelled, we can take at look at why I called DWP in the first place.

A week or so ago, BarLifeUK began to hear reports that some bar staff had not received furlough pay, despite their employers being enrolled on the government’s Job Retention Scheme. We investigated these reports, and then posted a form calling for input on the subject on this website and our social media channels. Twenty eight people contacted us via the form (the form is still live and we are monitoring responses), and others contacted us directly via social media. Most of these people claimed to have had their furlough pay withheld either temporarily or permanently by their employers, others presented anecdotal evidence of more widespread abuse of the system.

Even accounting for sour grapes or the odd personal vendetta, the number of complaints against employers and their similarity in nature leads us to believe this is indeed happening. And why wouldn’t it be? As of May 29th, HMRC had received almost 2000 furlough fraud reports, and it would be naive to assume the hospitality industry has not contributed to this total. In fact, whistle blower-protection charity, Protect, report that 28% of calls to the charity concerning furlough fraud have come from the hospitality sector.

A number of those who contacted us were worried that speaking publicly could result in them losing their jobs once lockdown is lifted, and requested anonymity. For that reason we won’t be naming any names in this article, however we can say that the reports we received spanned the industry, from tiny independent venues to ‘household name’ operators.

The allegations and their consequences

The allegations of employer misconduct we received fall into three broad camps:

  • Furlough payments were used by employers to temporarily bolster cash flow, and were subsequently paid to employees late.
  • Employers told employees that furlough payments had been received, but would not be distributed because the money was needed to pay venue rent or other bills, and thus ‘save the business’.
  • Employers told employees that their business had not been accepted into the Job Retention Scheme and furlough payments had not been received – Subsequent employee applications for Universal Credit were rejected because records showed furlough had in fact been paid to the employer.

Those who contacted us say these alleged abuses of the furlough system have resulted in an inability to pay rent and loss of accommodation, stress, mental health problems, and the feeling of being betrayed by an industry they love.

This is a serious article about a serious subject, however I’m struggling to maintain Business-BarLife tone while typing this, and Sweary-BarLife keeps wanting to poke its head out. The only word I can think of to describe an employer who would scam this system, lie to their staff, and not only fail to pay their furlough wages but also prevent staff from accessing Universal Credit is ‘scumbag’. It’s despicable behaviour deserving of the full legal penalties, which we will examine momentarily.

Advice for those affected

The most concerning consequence of employer furlough fraud is the potential impact it could have on access to the only safety net many bar workers have – Universal Credit (UC). I called the Department for Work and Pensions (DWP), who administer UC, to find out if it is possible that undisclosed furlough payments to an employer could show as income on an employee’s records, thus blocking a UC application.

The DWP spokesperson told me that the 4 or 5 weeks prior to the date of a UC application is used as an ‘assessment period’. Earnings data from this period is used to determine whether the applicant is eligible for UC, and the earnings data is supplied by HMRC.

At this point I entered an HMRC-DWP feedback loop, with each department telling me that only the other department could say definitively whether a fraudulent employer furlough claim would show up as earnings and nix an employee UC application. The most concrete statement I was able to extract from DWP was “If the HMRC data shows income above the acceptance threshold, a Universal Credit application wont be successful. But there is always a person to speak to (Case Manager) in that event.”

The conclusion I drew from this afternoon spent in bureaucratic hell is that is impossible to rule out employer furlough fraud as a cause for denial of universal Credit to an employee. With this in mind I contacted the Citizens Advice Bureau to find out what they suggest a person should do if they suspect their employer has fraudulently withheld furlough pay, and inadvertently blocked a Universal Credit application. They sent me this information:

Your employer should pay you on the same day you’re usually paid. If your employer says they haven’t had the money from HMRC yet, ask when they applied to the Coronavirus Job Retention Scheme. It should take around 6 working days for HMRC to give the money to your employer after they apply. If you think you should have been paid by now, ask your employer when they expect to pay you. You can raise a grievance if:

  • you think your employer has the money and it’s taking too long to pay you
  • you don’t hear from your employer or they won’t tell you when they applied to the scheme

If your employer has had money from HMRC for your furlough pay, they have to give it to you. If they don’t, they might be breaking the law – for example, it could be fraud. If you think your employer is keeping your furlough pay, you can report them to HMRC. You should still try to get the money you’re owed by talking to your employer then raising a grievance if you need to. You don’t have to give your personal details when you report your employer.”

In summary, if you believe your employer has kept your furlough pay, and this has caused your UC application to be denied, you need to report your employer to HMRC, keep a record of that report, and take it to your UC Case Manager if you appeal their decision. (see links at the bottom of the page).

The legal penalties for employer furlough fraud

Legislation that will introduce specific penalties for furlough fraud are currently moving through Parliament, which is unsurprising given the furlough scheme has so far cost the public purse around £20 billion. ‘Public purse’ is the key phrase in the preceding sentence, because it essentially means ‘stealing from the government’, and the government takes a dim view of being stolen from.

Patrick Cannon, a barrister who specialises in tax law and HMRC-related cases, says on his website that “the two most likely criminal charges if a scammer is caught making a false COVID-19 claim are:

  • Cheating public revenue – due to the serious nature of the crime, the maximum sentence for cheating public revenue in the UK is life in prison or an unlimited fine.
  • Providing false documentation to HMRC – either magistrates’ court or as a summary conviction, HMRC tax evasion penalties can range from a fine of up to £20,000 or up to 6 months in prison.”

The penalties mentioned above are taken from Sentencing Council guidelines.

It has been reported in the financial press that the government plans to announce a 30 day amnesty for employers who have committed furlough fraud. If offenders come clean during this period, they will not face prosecution, provided they return all improperly secured funds to HMRC. A date for this amnesty has not been set, and I was unable to find out whether payment of back-wages to staff would also be a condition of avoidance of prosecution, but financial commentators believe the amnesty is a sign that HMRC is now turning its full attention to furlough fraudsters:

It is clear that HMRC is now gearing up to tackle incorrect and fraudulent claims for Covid-19 support payments. For those where HMRC suspects fraud, we can expect serious investigations” Dawn Register, of tax firm BDO, told The Telegraph.

In conclusion

Whether an employer has held on to staff furlough pay for a couple of weeks in order to ‘bridge a cash flow gap’, or completely gamed the system by receiving Job Retention Scheme payments but not paying their staff, they have broken the law. In the former instance, offenders are unlikely to be punished by HMRC, although you would hope the peaceful sleep that comes with a clean conscience may prove illusive for such a person.

In the latter instance – employers who have effectively stolen from the taxpayer, the government, and their staff – these offenders will not get away with it. Since launching the various Coronavirus support schemes in March, HMRC has assumed an uncharacteristically cuddly, friend-of-the-people persona. This is a temporary shift in demeanour. In a few short months, the UK will be knee-deep in the biggest recession in living memory, and the Government will likely be the proud owner of the biggest budget deficit since World War Two, if not in UK history. At this point, HMRC will shed its human skin, revealing the T-1000 Terminator skeleton that is its true nature, and the relentless pursuit those who owe it money will begin. There’s not a lot of good news in this article, but those who have been screwed by their employers may at least find some consolation in knowing that the consequences of those actions are on the way.

Links and Further Reading