[New] TOP TIPS for dealing with HMRC furlough enquiries DON’T PANIC! WHAT IS A SHAREHOLDERS’ AGREEMENT AND SHOULD I HAVE ONE FOR MY BUSINESS?

You may or may not know that the Oxford English Dictionary defines furlough as “to give somebody permission to leave their duties for a period of time”.

What is a shareholders’ agreement?

You might hear different names (joint venture agreement, investment agreement, shareholders’ agreement) but they all essentially mean an agreement for a business with more than one shareholder which sets out how you will work together, how key decisions about the business will be made, and what you can and can’t do with your shares.

In the press, we have seen increasing mention of ‘furlough fraud.’ It has recently been estimated that the UK Government is likely to write off £4.3 billion pounds in furlough fraud.

the furlough scheme to help retain their employees during the pandemic may receive queries from HMRC. These could even be in cases where only legitimate furlough claims had been made.

an existing agreement (you shouldn’t have to keep redoing it, unless something really material changes).

show your intention of being cooperative, but will also help address any issues, without the need for escalation.

Why should we have one?

Help – I’ve had a query from HMRC

What will be covered in this sort of agreement?

What is furlough fraud?

Below are some practical tips to help you respond to any queries received.

Each agreement will be bespoke to the particular business, but this type of agreement will likely cover:

Examples of furlough fraud could include:

• Furloughed staff being asked to continue to work; • how directors are appointed to the board; • what happens if a new shareholder wants to join;

Tip 3: Make sure you review your records and keep copies.

This will allow you to refresh your memory and more importantly have all your documents ready to disclose to HMRC if needed.

With any luck, you’ll go to the trouble (and, unavoidably, some expense) of having a shareholders’ agreement prepared, only to file it away and never look at it again. Hopefully the venture will have gone well and you’re all working together well and concentrating on running a successful business.

Tip 1: Do not panic!

• Claiming furlough pay for staff who did not qualify for the scheme; • how big decisions are made (such as changing the business of the company, taking on new lending, or making big purchases);

Understand that HMRC may be following up leads or simply asking questions to ensure that all claims made were done so properly.

• Claiming furlough pay for ‘made up’ staff; • what happens if a shareholder wants to sell up and move on;

Tip 2: Do not bury your head in the sand.

• Over-claiming furlough pay;

• Not passing the full amount of furlough pay to the furloughed employees; • how you can stop a departing shareholder from competing with your business; and • what happens if a shareholder doesn’t do what they’re supposed to. Obviously all of the shareholders will need to be happy with an agreement before you sign it, and if new shareholders join later they can also sign a simple short document which will make them a party to

Tip 4: Be transparent.

In the event you realise that a mistake has been made, or any overpayments have occurred, make sure you promptly inform HMRC.

Tip 5: Keep records for a minimum of six years.

The real value of a shareholders’ agreement often becomes clear when the picture isn’t so rosy and something has gone wrong, perhaps because the founders have fallen out, something dramatic has happened in terms of a shareholder’s personal circumstances, or the business just hasn’t been as successful as everyone had hoped. When this happens, a good shareholders’ agreement will lay out the process for how to move on from this (such as the remaining founders buying out the one who wants to leave).

While it is easy to get distracted in keeping the business running, it is important to understand that this is not going to go away. If you cannot find time yourself to engage with HMRC, then make sure you instruct an adviser who can do so on your behalf.

• Deliberately providing false information to receive furlough pay from HMRC.

While it is understood that only a very small minority intended to defraud HMRC, it is known that HMRC have started ramping up their investigations and actively following up on tip-offs received. Many business owners in the UK who had accessed

Rachel Taylor

Direct: Phone +44 (020) 8394 6525

Even if you don’t end up in this ‘worst case scenario’, a shareholders’ agreement is still really useful as a planning exercise and for focusing minds at the outset, or when scaling up, about your expectations of each other.

Even if you were successful in addressing any queries and the matter was subsequently resolved, do keep your records for a minimum of six years to assist you with any potential future queries.

If this is something you think would be suitable for your business, please contact Rachael Taylor in the Russell-Cooke corporate and commercial team.

It is often too easy to say that we ‘will deal with this later’ and soon enough a month or more has gone by. It is always better to be proactive and start engaging with HMRC as soon as possible. This will not only

We can help

It goes without saying that if any actions are being taken against you by HMRC, please seek independent legal advice urgently. Contact our senior associate Sheetul Sowdagar in our professional regulation team, for help.

Email: Rachel.Taylor@russell-cooke.co.uk