More than 1,200 companies have been sent warning letters by HM Revenue & Customs demanding unpaid employment taxes be returned, as the government starts to recover debts built up in the pandemic.
Employers contacted by the UK tax authority were told they will have future furlough claims blocked unless they pay the backlog of income taxes and national insurance. The letter was sent this week to businesses that owe more than nine months’ worth of back payments to HMRC.
Under the furlough scheme, companies need to pay associated employee taxes and national insurance contributions when making claims. Other debts to HMRC will not affect an employer’s eligibility to access furlough support.
One government official said that at the start of the crisis the priority was to provide immediate financial help to those who needed it. But added, “as we now move through the pandemic, it is only right that we continue to ensure employers pay the correct employee tax and NICs they agreed to pay when applying for the grant”.
The FT this week reported that HMRC was seeking to take a careful approach to asking for overdue taxes from companies struggling with Covid debts.
However, the payments referred to in the letter this week are seen as part of the government grant that should be returned, rather than as an additional cost, with companies in effect being asked to pay back some of the grant taken under the furlough scheme as income tax and NICs.
“Our priority during the pandemic has been supporting customers, but it remains vital that the tax system continues to function and helps support essential services such as the NHS,” said the HMRC.
“The vast majority of employers have paid what they owe, but those who have not fulfilled their employee tax and NICs obligations on CJRS grants must agree to a payment plan in order to make further claims,” it said.
Officials also pointed to the letter as a practical example of the tax collector trying to work initially with the companies on repayments.
Any employers with difficulties paying the outstanding liabilities will be able to sign up to a manageable plan.
The coronavirus job retention scheme, which has provided £64bn to 1.3m employers, starts to taper from next week, when employers will need to pay 10 per cent of furloughed staff’s wages.
Business leaders in the hospitality, retail and leisure sectors have raised concerns that new costs come at a time when many businesses are still struggling to make any money given that lockdown restrictions were extended across the UK. More than 3m people were still claiming under the furlough scheme at the end of April, the last reported figures.
Craig Beaumont, policy chief at the Federation of Small Businesses, which has held discussions with week with HMRC about the approach to tax collection, said:
“It’s important that small employers pay the contributions owed to HMRC. However, we have asked HMRC to take a ‘safe harbour’ approach, especially since they changed furlough records to be submitted in a faster timetable.
“This would allow people to correct mistakes, and also to look at all their tax affairs and apply for [the] “Time To Pay” [support scheme],” he added.