COVID errors and HMRC compliance

Two recent cases illustrate the complexities of COVID support payments and the ongoing HMRC compliance project to recover incorrectly claimed payments.

The first case concerned 18 furlough claims made by the company from 1 April 2020 to 30 September 2021 in respect of an employee/director. Throughout the majority of that period, claims for support payments were based on a salary of £2,500 per month. HMRC’s thought that they should have been based on a salary of £600 per month.

The company’s RTI records show that throughout 2019 and up until and including 31 March 2020, the director’s taxable pay was £600 per calendar month. During that time, the company had been paying dividends to the director at a rate of £2,500 per month.

The accountant had watched a televised parliamentary debate concerning the introduction of the scheme. His evidence was that when a question was asked of the Chancellor of the Exchequer by Ed Davey, about how directors who had previously been paying themselves by dividends and only a small salary could make a claim under the scheme, he was told that they should make use of the scheme.

Following this, the accountant recommended that the director should effectively ‘replace’ the dividends that he had previously received with additional salary, to enable him to make a claim under the scheme for support payments equivalent to 80% of the increased salary (i.e., £2,000 per month).

The company then paid a salary of £2,500 per calendar month, which was borne out by the company’s RTI payment records. The first such record post-dated 19 March 2020 and was for 30 June 2020 but the inference was that the RTI information for 30 April 2020 and 31 May 2020 would have been the same. However, it was clear from the RTI information up to and including 31 March 2020 that the salary was £600 per month.

The Tribunal stated:

‘It is our view that the purpose of the legislation…was not intended to allow an employer, after the introduction of the scheme, to inflate an employee’s wages and thus, effectively, have the taxpayer underwrite an employee’s salary. This would drive a coach and horses through the legislation which was designed to fix an employee’s salary to that recorded on the latest RTI submission prior to 19 March 2020. To interpret the legislation otherwise would lead to an injustice.

…it is our view that paragraph 7.12 does not allow the appellant to claim support payments on the increased salary of £2,500 which it made to Mr Smith during the periods under assessment.’

The appeal was dismissed.

The second case concerned claims under the Self- Employed Income Support Scheme (SEISS). HMRC raised an assessment for £14,070 in relation those claims. The taxpayer incorporated his self-employed business in February 2018, but made claims under the SEISS scheme.

Suffice to say the taxpayer lost his appeal!