CCM10800 – Penalties and Interest: Incorrect Claims – Penalty Examples - Enquiries or Examinations Opened on or after 6 April 2008

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

Example 1

Colin applies for WTC and is awarded £3,308 for 2008/2009. In December 2008 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 Colin 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. Colin 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.

This was a Deliberate Error, so there is a penalty of 25% of the over-claimed tax credits (which were £2,480). £2,480 x 25% = £620 penalty. The penalty is not reduced because there was no unprompted voluntary disclosure of the error.

A penalty of £620 is appropriate and Colin will be told that any future incorrect application is likely to result in a larger penalty.

Example 2

Rachel applies for WTC and CTC and is awarded £4,960 for 2007/2008. In October 2008 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. 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 2007/2008 are revised to WTC of £0.00 and CTC of £3,435, giving an over-claim of £1,525. Rachel quickly agrees all of your computations. By December 2008 you are in a position to settle the enquiry.

This was a Deliberate Error. £1,525 multiplied by the penalty percentage of 25% = £381 penalty. (This text has been withheld because of exemptions in the Freedom of Information Act 2000)a penalty of £381 should be charged.

Rachel should also be told that any future incorrect claims could result in a larger penalty.

Example 3

Lesley applied for WTC and CTC and is awarded £4960 for 2006/2007. The facts are identical to those in example 2 but in addition to the incorrect claim and end of year declaration for 2006/2007, Lesley submits an incorrect end of year declaration for 2007/2008 and this also omits her second job. The Section 19 enquiries for 2006/2007 and 2007/2008 are both opened in June 2008. Your penalties now need to include both years and a separate penalty should be considered for each claim. Although there is a repetition of a Deliberate Error, this is not a repetition following an examination or enquiry where we have challenged the claim. The errors should still be treated as Deliberate Errors, although Lesley should be told that a repetition in future years may result in a higher penalty (as a Deliberate and Systematic Over- claim).