An examination of cases where accountants paid the price for furlough failures
The Covid-19 pandemic delivered huge disruption to businesses of all kinds in its early stages, impacting operations in such a way that many businesses had to halt work altogether.
Government support such as the furlough scheme offered some relief for these businesses, although, as many had to react quickly, a number of claims were turned down – in some cases leading to accountants paying the price.
Below are just some of the examples of unsuccessful furlough claims we have seen throughout the pandemic, offering some insight into how and why accountants have been targeted by their clients.
The insured party was employed to do VAT, bookkeeping and payroll; a letter of engagement was in place to this effect.
Unfortunately, at the start of 2020, the client employed a new staff member but the starter checklist the insured sent to the client to complete was never returned.
As such, they did not have the NI number, date of birth, or address of the new employee. When Covid-19 struck, the firm wanted to furlough its staff, but they were unable to do so as they did not qualify due to not submitting Real Time Information to the HMRC on time.
The case is now closed, with the insured writing off the costs to its client as a goodwill gesture.
In February 2020, the insured should have filed a Full Payment Submission (FPS) for payrolls but did not as they were taking time off for personal reasons. This was the first payroll for a new business which prepares its payroll every four weeks.
All the company’s FPSs were scheduled to be submitted at the year end. However, in early April of that year, the insured realised none had been completed.
When the insured tried to apply for the furlough, they were told online that they could not apply as there were no submissions by the March 19 deadline. The insured spoke to HMRC on three occasions, speaking with its Tier 1 team, through to Tier 3. With the legislation being new, the insured was advised by HMRC to write in – which is what they would have done anyway.
The insured provided payslips, bank statements, and emails regarding the January 2020 payroll that should have been submitted in the first week of February the same year.
The insured’s attempted appeal of the unsuccessful furlough claim was rejected by HMRC and resulted in insurers making a settlement payment of £115,213.
An insured party which runs the Construction Industry Scheme (CIS) and payroll for its client was instructed to run the client’s payroll as nil in 2015, after the client had an accident and was seeking compensation.
The insured continued to run the client’s payroll at nil for 13 months, as at that time HMRC required no more payroll submissions, so they just continued to run the CIS scheme under the reference number.
Therefore, the client had not been receiving payslips or paying any NI over to HMRC for that period. The insured had received no instructions from its client to recommence running the payroll at any time.
After the lockdown occurred, the insured received an email asking if the client could be furloughed. At the time of replying, the insured believed this was possible, but as the landscape was changing minute by minute, certain conditions had to have been met.
The insured ran the payroll and backdated as far as they could in an attempt to qualify its client for furlough, but ultimately the final condition was an FPS submission had to be received by HMRC by 19 March 2020.
As the insured only went into lockdown from 24 March 2020, there was no way the client would qualify as the insured had no instruction until after this date.
The incident led to legal issues between the insured and its client, concluding in a settlement of £3,200.
As part of the payroll services undertaken by one insured party, they had been offering to calculate and claim furlough payments.
Some clients chose calculations only and others agreed to let them make the claims also. One client agreed to use the insured’s service; however, a communication error led both parties to believe the other was making the claim.
This ended up with the claim being out of date and ineligible to be backdated. The overall loss was around £7,000. While there was an element of fault on the part of their client, the insured made an ex-gratia payment of £7,000 following negotiations.
Since November 2020, HMRC has implemented a deadline for furlough scheme claims to be submitted no later than 14 days after the month end to be paid.
During December 2020 there was an error in the insured’s control sheet. The error resulted in two claims for separate clients in November not being submitted on time. The amounts involved were £9,367, and £22,553. However, after appeal, these payments were made by HMRC.
The majority of claims were made relating to payment issues seen during the first lockdown, which began in March 2020. Various financial schemes were available at the time, and with many businesses and accountants being forced to meet deadlines quickly, mistakes were an inevitable consequence.
The second lockdown, which began in November 2020, has seen fewer examples of this, possibly with insured parties having better acquainted themselves with the details of furlough, and clearer guidance from HMRC. However, with claims taking time to process, appeals and insurance claims may take time to surface.
If you would like to learn more about the exposure you have to furlough-related claims, contact your Lockton representative.
Catherine Davis – ACCA relationship manager, Lockton companies
In partnership with Lockton, ACCA is running a series of webinars in 2022 on risk. The first one takes place on 6 April and looks at anti-money laundering and the risk to your insurance cover. Find out more in this edition.
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