COMMENT: This year has been extraordinary in many ways, including the amount of support packages provided by HM Revenue & Customs to assist businesses and individuals to survive such unprecedented economic turmoil. No doubt this was needed, but ultimately these were taxpayer funds, and – as the UK begins to emerge, with hope, into a new “normal” – it is natural that companies have started to face public criticism about their decision to claim for these support packages where they are now seen to have had a profitable year, even where such profits were unexpected. The property industry has been no exception to this scrutiny.
Reputational damage – or worse?
Take, for example, the Royal Institution of Chartered Surveyors, the CEO of which recently faced public outcry after it was disclosed that he accepted a six-figure bonus despite the body claiming furlough money and making widespread redundancies last year. It is time for businesses to consider whether they can justify their decision to claim under the support packages and whether they should be seeking to reimburse the public purse.
On the one hand, it raises a question of reputation. Clearly the RICS has suffered public backlash by its handling of its profits, while relying on public funds to settle its furloughed staff wages. People disapprove of successful businesses using state aid to furlough employees.
But this could also be more than a reputational issue. Rishi Sunak’s Taxpayer Protection Task Force is at work and we have already seen headlines showing arrests being made and repayments made by businesses who falsely claimed under the support packages. The message is clear — the government is seeking to recoup any funds it can. The task force is using data analytics and is looking under every stone to make sure that businesses did not misuse the state aid schemes introduced in this unprecedented year.
While it is evident that the task force is currently focusing on taking action where there are clear and obvious signs that claims were fraudulent, for example, where furloughed staff were threatened with dismissal if they didn’t continue working, there is perhaps a further question they will consider down the line: were businesses in fact utilising the support schemes for the purpose they were intended?
The terms of furlough
The Treasury directions which set out the furlough scheme sought to define the purpose of the support package. These directions changed slightly over time. However, the overall message was that it was to reimburse employers for staff wages where that employee had to be furloughed “owing to circumstances arising from coronavirus”. This is quite a wide definition, and might include where an employee was unable to work remotely or where a company was unable to afford the full wage bill.
The HMRC task force may justifiably want to know whether the reasons behind a business’s claim were genuine and if they continue to be. It is possible therefore that a business that has been successful this year will need to show that the reason for furloughing its staff was in some way linked to the pandemic, not simply to bolster its profits. The Treasury direction seems to anticipate this point, noting overall that “no claim should be made if abusive or contrary to this purpose”. Companies may particularly find themselves under scrutiny from furloughed staff who were subsequently made redundant and could potentially now be the subject of whistleblower claims.
Going forward
The job retention scheme continues, and the pandemic is not over. Businesses that continue to rely on it must be sure that they continue to require it. Businesses that find themselves unexpectedly profitable should consider whether they can be sure they really needed it, for the defined purpose of the scheme. Ultimately this will be a judgment call. Each business had its own considerations when deciding to make a claim. They must now consider whether this was right.
If they remain confident that the claim was legitimate, they should document that decision, noting how their claim was linked to the purpose of the scheme. Simon York, chief investigation officer and director of the Fraud Investigation Service at HMRC, recently posted on LinkedIn that: “Much of the work of the Task Force will be working with claimants to correct mistakes and sort out incorrect claims using a civil tax enquiry type approach. But where we see more serious and deliberate fraud, we have FIS teams, working as part of the Task Force, building criminal cases.”
Clearly, enforcement should be targeted and focused on those who did the wrong thing, not where honest claims ultimately were not required. However, if there is any doubt as to whether the claim (or perhaps subsequent claims where staff remained furloughed for some time) met the purpose of the scheme, then rather than brazen it out, businesses should consider taking up York’s offer. That would mean working with HMRC to correct their mistake, sorting out the incorrect claim and moving forward — prior to public backlash and, maybe worse, the FIS arm of the new task force knocking on their door.
Jemma Sherwood-Roberts is a partner at Constantine Law
