The Government has published draft legislation that would enable HMRC to claw back payments made under, amongst others, the coronavirus job retention scheme (CJRS) if the recipient was not entitled to the payment or there was an overpayment. It also sets out circumstances in which HMRC will impose penalties. In some cases directors will have personal liability if the company becomes insolvent and is unable to repay monies owed to HMRC.
Under the draft, a coronavirus support payment is treated as income and must be taken into account when calculating business or individual partner profits for the purposes of income or corporation tax. Such payments are then subject to the usual tax rules regarding profits, expenses and available allowances.
The draft gives HMRC the power to check the use of payments made under the CJRS, and to raise an income tax assessment on CJRS payments which the business was not entitled to receive. This includes where:
- The payment was not used by the employer for the purpose of paying costs relating to PAYE, NICS and pension contributions;
- The payment was made in respect of an employee who continued to work for the employer, thus being in breach of the CJRS terms;
- The payment was made under an erroneous claim.
This assessment may be made at any time after the payment, subject to a statutory limitation period of 6 years.
The tax due will be the full amount of the payment that the company was not entitled to receive. This will be offset against any amount that has already been paid back to HMRC.
The company (via its directors) is obliged to notify HMRC if it is liable to repay a CJRS payment for any of the above reasons.
Where a company is:
- subject to an insolvency procedure or there is a serious possibility of that company becoming subject to an insolvency procedure; and
- there is a serious possibility that some of its income tax liability will not be paid following receipt of a payment under, amongst others, the CJRS,
the directors of that company will be jointly and severally liable to HMRC for the income tax that is due.
If a director knows that a CJRS grant should be repaid but fails to notify HMRC of this, the failure is deemed to be a “deliberate and concealed” act and the director would be liable for a penalty of 100% of the amount due.
What directors should be doing
If you are a director of a company that has been the beneficiary of the CJRS (or other coronavirus related payment), you have oversight of CJRS claims for employees in your company.
Directors should be making sure that the business is capable of creating and maintaining accurate records as to the amount of CJRS claims and the underlying calculations. This is a requirement under the scheme – the company's accountants may be able to assist. If directors become aware of an income tax liability regarding a CJRS payment, then they should notify HMRC as soon as possible.
With the Chancellor previously announcing that HMRC will be employing 1,300 additional staff to assist with tax collection over the next 5 years, it is clear that HMRC are committed to recovering erroneous sums paid out under the CJRS. Transparent accounting and swift notification of liability for claims is key for directors to mitigate the company's and their own liability.