Many transport companies are receiving very large payments from HMRC under the Coronavirus Job Retention Scheme. But the rules are vague, and as law firm Osborne Clare explains, it has been hard for many companies to know for sure if they are using the scheme correctly.

From the start, it has been made clear that incorrect use of the Coronavirus Job Retention Scheme will lead to clawback by HMRC.

On 29 May, the government announced a consultation on a retrospective statutory regime for the clawback of grants. The signs are that the regime will be harsher than was expected, with the burden being on users of the scheme to show they were entitled.

So where might businesses face reclaims by HMRC? And where might company directors be personally liable? What should company directors do now to minimise risk?

The clawback proposals

The proposals confirm that furlough grants will be taxable. Where a recipient is not entitled to a grant under the Scheme or has misused it, then the grant is subject to income tax at 100% – effectively clawing back the whole grant. The clawback may apply to genuine errors by businesses in using the Scheme, not just deliberate or reckless misuse.

By treating the grant as taxable, HMRC will be able to act in a number of ways:

• It will be able to enforce repayment.

• It will be able to investigate up to four years after the grant was made, with extended time limits of six years for careless behaviour and 20 years for deliberate misuse.

• Businesses will be required to notify HMRC if they know that they have received payment of grant to which they were not entitled. Penalties will be applied for failure to notify.

• The regime is retrospective, applying to all grants made under the scheme.

• Once an assessment is raised, the burden of proof will be on the taxpayer to show HMRC is wrong. Establishing entitlement may be difficult.

Personal liability of directors

If a company is insolvent when a reclaim is made then directors, or shadow directors may be personally liable, if they are responsible for the management of the company and knew when the liability to pay HMRC crystallised that the company was not entitled to the grant.


For deliberately fraudulent claims, HMRC may prosecute. The guidance expressly highlights fraudulent claims. Examples of deliberate abuse could be an employer requiring employees to come back to work during furlough knowing that this breaches the scheme conditions, or an employer claiming for workers without intending to use the grant to pay those workers, or not otherwise passing on 100 per cent of the grant received to workers.

When might companies be deemed to have made mistakes, triggering clawback risk?

There is still much uncertainty about entitlement under the scheme. Its rules are set out in HMRC guidance and a Treasury Direction, under the Coronavirus Act 2020. The Guidance seeks to set out the circumstances in which a claim can be made but leaves open some important questions regarding validity of claims.

As a result, many businesses have had to make decisions about eligibility to furlough grant on the basis of what they assume the government intended. But there are major areas of uncertainty around demonstrating the effect of Covid-19, the distribution of profits to senior staff, workers re-engaged to go on the furlough scheme, the payment of discretionary bonuses, claims made under the guidance that were subsequently not deemed correct in an updated version of the guidance, errors made by managers at divisional level, whether payments have been made on to the workers, evidence concerning whether workers did not work while furloughed and others.

There are likely to be questions surrounding making employees redundant while on furlough and also if companies that have not been severely affected by Covid-19 start paying back grants.

Businesses should ensure that they have detailed records of their decisions regarding why they considered that they were entitled to access payments under the scheme, including evidence of grant payments made. Companies should also obtain and retain evidence that employees paid under the Scheme would still have been employed but for Covid-19.

The deadline of the first obligation to self-declare mistakes is 30 days after Royal Assent – which we expect to take place by 21 July when Parliament rises for the summer recess. Companies should seek to carry out any review and make corrections to any grants before this date to avoid penalties.

Companies should put in writing to employees that they need to stop working while furloughed. If local or divisional managers have implemented the scheme, spot checks should be carried out regarding its application and records of those checks kept.

Directors will probably need to reassure their auditors. If in doubt, seek legal advice.