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When Good Intentions Meet Bad Compliance
The Coronavirus Job Retention Scheme (CJRS) was designed to support businesses during an unprecedented global crisis. But as many companies have learned the hard way, claiming under the scheme comes with strict rules, and failing to follow them can have serious consequences.
One such case involved SWG Polymer Services Ltd, where a misunderstanding of the furlough rules led to rejected claims, tax issues, and a tribunal loss. Here’s what happened, what the tribunal found, and the critical lessons for any business that claimed furlough support.
The Case in Brief
SWG Polymer Services Ltd, a company providing services for injection moulding machines, was run by SG, a sole director. Like many businesses, operations were affected when the first UK lockdown hit in March 2020. The business paused for a few days before SG began taking client calls and offering remote support.
Despite this, SWG claimed furlough support under the CJRS for SG. HMRC conducted a compliance check and decided the claims were invalid. The company appealed the decision, but the First-tier Tribunal (FTT) dismissed the appeal.
What the Tribunal Considered
The FTT looked at three specific time periods during the pandemic:
- 1 March to 18 March 2020: This was before the lockdown began. SWG operated as usual, and no one was furloughed. There was no CJRS claim during this period.
- 19 March to 30 June 2020: SG admitted to working at least 18 hours during this timeframe, helping customers remotely. While the work was limited, it was enough to disqualify him from being considered “furloughed.” Under CJRS rules, a furloughed employee must not carry out any work for the business that generates income.
- 1 July to 30 October 2020: By this point, flexible furlough had been introduced. However, to qualify for flexible furlough, an employee had to be fully furloughed for at least a period ending on or before 30 June 2020. Since SG wasn’t validly furloughed in that period, he didn’t qualify.
The Outcome
The tribunal concluded that:
- SG had continued working, disqualifying him from CJRS eligibility.
- The company had made over claims and should have declared them in its 2021 corporation tax return.
- The excuse of not understanding the rules or finding guidance unclear was not enough to overturn the decision.
The result: The appeal was dismissed, and HMRC’s assessments stood.
What Went Wrong?
- Misunderstanding the Definition of “Furlough”: CJRS rules were clear: no work could be done for the business during furlough. Even answering phones, giving advice, or admin tasks disqualified an employee.
- Assuming Flexible Furlough Applied Retroactively: Flexible furlough was only available if a full furlough had taken place beforehand. SG didn’t meet that requirement.
- Failing to Adjust Corporation Tax Reporting: Once an overclaim is identified, it must be reported and included in the correct tax return. SWG failed to do this.
Lessons for Other Businesses
Know the Rules Before Claiming: Understanding the details of any government support scheme is essential. If in doubt, get advice.
Keep Clear Records: If you’re claiming support because someone is not working, make sure your records prove it. Document what work (if any) was done, or avoid work entirely during furlough.
Act Quickly if Mistakes Are Made: Overclaimed furlough must be reported to HMRC within 90 days of discovery. Including it in your tax return is also a requirement.
One-Person Companies Must Be Extra Cautious
It’s common for sole directors to try to keep things running smoothly. But even small actions—sending an email or taking a call—can breach furlough rules.
The case of SWG Polymer Services Ltd. clearly reminds us that even small lapses in compliance can lead to serious tax consequences. The CJRS provided much-needed relief, but it also came with tight conditions.
If your business claimed CJRS and you’re unsure whether it was done correctly, it’s worth reviewing your records now—especially if you’re a sole director or a small company.
Need Support With Furlough Reviews or HMRC Enquiries?
At Tax Accountant, we help businesses handle CJRS claims, reviews, and HMRC challenges. If you’re worried about compliance or facing a similar situation, we’re here to guide you through it. Book a consultation today and get peace of mind.