HMRC goes for recovery powers on COVID-19 grants

Business owners who have fraudulently claimed coronavirus grants are in HMRC's sights, should a proposed amendment to Finance Bill 2019-21 get the go-ahead this week.

In draft legislation posted on GOV.UK, the Revenue outlines how it will be able to recover payments where a recipient was not eligible.

The proposed amendment initially applies to the furlough scheme and the self-employed income support scheme.

A two-week consultation got under way late last month and closes on 12 June 2020, with the outcome due to be published in the coming days.

Should the amendment gain approval, unspecified penalties will be charged where HMRC can prove cases of deliberate non-compliance.

What checks are in place?

With the furlough scheme, the Revenue checks if an employee appeared on a real-time information report prior to 19 March to determine eligibility.

However, with the self-employed income support scheme (SEISS), the worker is asked to confirm whether or not they meet the eligibility criteria.

As of 7 June 2020, more than 8.9 million employees had been placed on furlough for at least three weeks.

At the same time, over half of the UK's self-employed population - 2.6m - had made claims through the SEISS amounting to £7.6 billion.

How will the grants be recovered?

Should the amendment get the green light, HMRC will have additional compliance and enforcement powers to recover payments to which recipients were not entitled to.

These powers will also enable the tax authority to go after employers who have received payments through the furlough scheme and not used them to cover salaries, any workplace pension contributions, National Insurance contributions, or to pay PAYE.

The Revenue intends to do this by making taxpayers submit a self-assessment tax return for 2020/21 before midnight on 31 January 2022.

How will eligible grants be taxed?

The amendment proposes that grants provided to help businesses, employers, and partners who were affected by COVID-19 will be treated as taxable income and be liable for either income tax or corporation tax. That applies to both the furlough scheme and the SEISS.

Under the furlough scheme, furloughed workers will be taxed through PAYE as usual and pay their marginal rate of income tax. For the SEISS, the grant will be treated as if it were trading profits from 2020/21.

Upcoming changes to the schemes

Both the furlough scheme and the SEISS have been extended until 31 October 2020, although changes to the criteria will apply.

From 1 July 2020, only workers who have been furloughed for at least three weeks on or before 30 June 2020 will be eligible for the furlough scheme.

Employees must have been furloughed no later than 10 June 2020 to be eligible for support in the final four months.

For the SEISS, workers can continue to apply for lump sums until 13 July 2020 before a "second and final" round of support opens in August.

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