CCM10110 - Penalties and Interest: Incorrect Claims – Penalty Examples – Enquiries or Examinations Opened on or before 5 April 2008

The following examples show how the amount of the penalty is established.

Example 1

Tim applies for WTC and is awarded £3,306 (£63.58 per week for 2003/2004). In December 2003 you open a Section 16 examination because the CCRO has identified that there are indications that he is not working 16 hours per week. Following your opening letter Tim attends a meeting and on challenge admits he does not work 16 hours per week. He only works 15 hours per week but his hourly rate is double that of his friends. He therefore thought it was unfair that he could not claim tax credits so he overstated his hours. Within 3 weeks you are in a position to settle the examination.

There have been no previous HMRC challenges leading to a Section 31(1) penalty. The over- claimed credits are £3,306 and as there are no credits due the over-claim is 100%.

A penalty of £500 is appropriate and Tim will be warned that any future incorrect application is likely to result in a much bigger penalty.

Example 2

Rachel applies WTC and CTC and is awarded £4,960 (£95.38 per week) for 2003/2004. In October 2004 you open a Section 19 enquiry because you have information that in addition to her job at the local hospital, Rachel also worked part-time as a waitress at The Dragon public house. Tax had been deducted at the basic rate from the wages from the second job. Rachel did not declare this source of income on either her original claim or on her end of year declaration. The potential amount involved does not allow this to be worked as a discrepancy enquiry. Rachel replies immediately to your opening letter and meets with you the next week. She admits the omission of her earnings and tips and says she was trying to get some extra money to take her children on holiday. As a result of the enquiry the credits for 2003/2004 are revised to WTC of £0.00 and CTC of £3,435 (£66.06 per week). Rachel quickly agrees all of your computations. By December 2004 you are in a position to settle the enquiry.

There have been no previous HMRC challenges leading to a Section 31(1) penalty. The over- claimed credits are £1,525 (29.32 per week). The percentage over-claimed is £1,525 divided by £4,960 x 100 = 30%. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

A penalty of £250 is therefore appropriate. Rachel will be warned that any future incorrect claims are likely to result in a much bigger penalty.

Example 3

Katy applied for WTC and CTC and is awarded £4960 for 2003/2004. The facts are identical to those in example 2 but in addition to the incorrect claim and end of year declaration for 2003/2004, Katy submits an incorrect end of year declaration for 2004/2005 as this also omits her second job. The Section 19 enquiries for 2003/2004 and 2004/2005 are both opened in August 2005. Your penalties now need to include both years.

This still counts as a first challenge by HMRC but there are now two penalties of a maximum of £3000 each. The penalty under Section 31(1)(a) is per claim. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

Example 4

Bev claims for WTC and CTC and is awarded CTC of £3,308.20 (£63.62 per week) for 2004/2005. In August 2004 you open a Section 16 examination because the CCRO has information that she is living with Mike and have identified a possible second job which has not been declared. You receive no response to your opening letter and have to issue a formal information notice before they respond. Bev agrees to see you and brings Mike to the meeting but on challenge they deny they live together as husband and wife. Mike claims to be Bev’s lodger. However, Bev admits having a second job. You ask to see Bev’s bank statements and household bills which were produced very quickly. These do not give any indication of them living together as husband and wife but they do show Bev had an additional source of income as a casual secretary for a local business.

You accept they are not living together as husband and wife but Bev accepts she submitted an incorrect claim. After taking into account the extra income the CTC is reduced to £2,494.20 (£47.97 per week).

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

Example 5

The facts are the same as in example 4 except Bev initially denied having a second job and only admitted this when the source of income was identified on her bank statements and the revised amount of credits is £572 (£11 per week).

The over-claimed credits are £2,736.20 so a penalty of £750 is therefore appropriate

Example 6

The facts are the same as in example 4 except that Bev denied having a second job and refused to release her bank statements and household bills. You had issued a formal notice requesting the documents and it was only when you wrote to tell her you intended to terminate the award that Bev produced the household bills. Two weeks later she produced the bank statements. It was only when you identified the additional deposits going in to her bank account that she admitted the second job. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)

A penalty of £900 is therefore appropriate. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)