Legislation is being rushed through Parliament to introduce employer penalties for furlough fraud.
The government plans to give firms 30 days to admit to deliberate non-compliance of furloughing rules, according to The Telegraph.
More than 1,900 claims have been made to the furlough fraud hotline and whistleblower charity Protect has also experienced a rise in calls.
Workers have been calling the lines to report on their employers for cheating the furloughing system. Abuses have included claiming on employees' behalf without their knowledge or expecting employees who have been furloughed to continue working.
HMRC have now warned employers they may be charged a penalty for breaching the furlough rules when the legislation is passed.
The new law is expected to come into force next month to help target companies' incorrect or fraudulent claims.
Almost nine million workers have been furloughed under the Coronavirus Job Retention Scheme since March, at a cost of £19.6bn ($24.6bn) to the taxpayer. A further £7.5bn has been paid out to 2.6 million self-employed claimants.
The scheme was designed to prevent businesses from making staff redundant due to the economic turmoil caused by the coronavirus pandemic.
The government stepped in to continue paying 80% of staff wages in a bid to protect jobs.
But there have been growing concerns that some employers have been taking advantage of the system and the government now want to crack down on these.
"It is clear that HMRC is now gearing up to tackle incorrect and fraudulent claims for Covid-19 support payments. For those where HMRC suspects fraud, we can expect serious investigations," Dawn Register, of tax firm BDO, told The Telegraph.
The legislation is expected to introduce a 30-day period for employers to "confess" and notify HMRC of any furlough mistake claims.
After this grace period HMRC will be pursuing companies using criminal and civil powers.
The new rules will apply to employers with furloughed staff and self-employed workers who applied for funding under the Self-Employment Income Support Scheme.