CPAG in Scotland Tax Credits Project: Factsheet 4Tax Credits ChecksIntroduction IntroductionTax credits are administered by Her Majesty’s Revenue & Customs, referred to as the Revenue in this leaflet. All tax credit claims are subject to automated verification checks before going into payment, for example to match national insurance numbers. The Revenue makes further checks on thousands of tax credit awards each year to make sure that the right amount of tax credit is paid. It has extensive powers to check tax credit claims. A tax credit check may range from a simple request for information that is needed to clarify a claim before an award is made, to an investigation for fraud that could lead to prosecution. The Revenue might decide to check circumstances after noticing a discrepancy between the claim and other information held by them or because automated processes have identified the claim to be in a group considered at risk of being incorrect. They also select at random a small number of cases for checking but only once awards are finalised at the end of the year. Tax credit checks normally focus on personal circumstances. There are certain areas that the Revenue is particularly concerned about:
The system includes penalties that can be imposed in certain circumstances. However, guidance advises that the checking policy is to help you get things right wherever possible rather than to penalise you. Types of checkTax credit awards are initially awarded on the basis of your circumstances during the tax year (6 April to 5 April) and your income in the previous tax year. You are required to notify the revenue of certain changes of circumstances during the year. At the end of the tax year, you are sent an annual review form to confirm details of your income and circumstances, and the Revenue then finalises the award for that year.
ExaminationsStarting an examination An examination can start any time from the date of claim until the award is finalised after the end of the tax year. There can be more than one examination into an award. For example, there may be a new examination if you report a change of circumstances. If you make a new claim (rather than a renewal claim), there may be an examination before any payment is made. Conduct of an examination Although the Revenue has legal powers to require you to provide any information or evidence it considers necessary to make a decision, the way the examination is conducted is left to guidance. When processing staff at the Revenue are verifying a claim, they may simply phone you for more information. Examinations are more formal and guidance advises that they should begin with a letter asking for specific information or supporting evidence. Couples making a joint claim should each receive the same letter. If you do not provide the required information, there are formal powers that could ultimately lead to penalties being applied (see Powers below). The presumption is that the Revenue considers that additional information is needed in order to make a decision on an award. Examinations are not expected to be made at random. The initial letter may be followed up by a phone call and possibly an arranged meeting. Meetings The Revenue may arrange a meeting at your home or elsewhere. You do not have to agree, but as the Revenue has wide powers to require information and may impose more severe penalties if it considers you have not cooperated with enquiries, it may be sensible to do so. You can take someone with you to the meeting, such as a friend or adviser. An interpreter can be arranged by the Revenue if required. If the Revenue has tried a number of times unsuccessfully to contact you by letter and phone, they may send someone to your house unannounced. You can refuse to talk to someone who turns up without an appointment. In that case, they should arrange another appointment. The Revenue should not go to your workplace without your agreement. You may be asked to sign a copy of the notes of the meeting, but there is no obligation to do so. If you do sign the record of the meeting, you should be very careful to check the record is acceptable. It may be used as evidence to settle the examination. An official visiting you at home can make a note of what they happen to see in full view but they should not go into other rooms or look into anything else unless you invite them to do so. Tax credit payments during examinations For new claims (but not renewal claims) if an examination starts before an award is made, you will not normally be paid until the examination is finished. If an award has been made, the Revenue will normally continue to make payments during the examination. If, however, you do not cooperate with the Revenue and supply information requested as part of the procedure, the decision maker may decide to revise or stop an award based on the facts they do have. Penalties may also be charged (see below). The end of an examination If the Revenue finds that an award is incorrect, you are likely to be asked to sign a ‘certificate of full disclosure’. This is a written declaration that you have disclosed all facts relevant to your tax credits claim. Great care must be taken before signing a certificate of full disclosure to ensure that all the details given are complete and correct. At the end of the examination the Revenue will make a decision on the award. It may also decide to impose penalties (see Powers below). You have the right to appeal against the decision on the award, and any penalties. You cannot stop an examination taking place. Nor can you ask for an examination to be stopped once it has started. If you feel that the examination should not have been started, or has not been properly conducted, the only redress is to make a complaint. EnquiriesNotification of an enquiry An enquiry is a more formal process than an examination. It must by law start with a letter to you giving notice of an enquiry. Only one enquiry may be made into a year’s tax credit claim. Where you have had more than one award in the year for different periods, one enquiry will be made into all of them together. But where you have had more than one award in the year because your household changed, separate enquiries may be made into each award. If you are claiming jointly with a partner you must both be sent a separate notice.
Enquiry time limits Enquiries must be made within strict time limits, but the timescale depends on your specific circumstances. In all cases however they can only be started once a final decision has been made on an award. If you are receiving only the family element of child tax credit, the Annual Review form will be the final award notice for the year, unless there are changes to report. If income and circumstances are as stated in the form, the final decision date is taken as 31 July. The usual time limit for starting an enquiry is 12 months after the deadline for the claimant to reply to the annual review. This is usually 31 July following the year of claim, but can be 31 January of the next year if estimated figures were used to reply to the annual review. If you submit a self assessment tax return, the enquiry must start by the date the self assessment return becomes final. This is usually 12 months from 31 January following the year of claim, but will be extended if the self assessment return is filed late or amended.
If the time limit has passed, the Revenue cannot start an enquiry into the award for that year. The award could still be revised at a later date if there has been an official error, and in other limited circumstances. When does an enquiry end? There is no time limit for the completion of an enquiry. Following the enquiry the Revenue decides whether you had an entitlement to tax credits during the year in question and, if so, at what rate. The enquiry comes to an end when the Revenue gives you notice of this decision. Before the enquiry is completed you can apply to an Appeal Tribunal to direct the Revenue to bring the enquiry to an end. The tribunal should give a direction to this effect unless it is satisfied that the Revenue has reasonable grounds for not doing so. Conduct of an enquiry The basic approach is similar to that for examinations. See the section above, Conduct of an examination, for details. The Revenue does not normally give a reason for starting an enquiry. Some enquiries are selected on a random basis to check that the tax credit system is working as it should. Asking for help You can ask someone else to deal with the Revenue on your behalf. This needs a signed letter from you saying who you would like to act for them. Your partner must also sign if you claim as a couple. Advisers can use the official form TC689 Authority for an intermediary to act on your behalf . You can download this from the website www.hmrc.gov.uk Outcome of the enquiry At the end of the enquiry, the Revenue may have found errors. They must write to you, or to both you and your partner in the case of a joint claim, telling you of the outcome of the enquiry and giving the new decision on entitlement. You have a right of appeal against this decision. You must appeal within 30 days although late appeals can be accepted in special circumstances. Where the errors mean that you have been overpaid, the overpayment can be recovered from any ongoing award of tax credits in the same household. Otherwise, the Revenue can ask for repayment directly from you – see our leaflet, Tax credit overpayments. There may also be interest and penalties. PowersThe Revenue has wide powers to request information, charge interest and penalties, and, in the case of suspected fraud, to search buildings. Requests for information The Revenue is likely to ask for bank statements, wage slips, household bills and details of income and family circumstances. For an in-year examination, the information asked for should only be such as is needed to make a decision about an award. For example, if the Revenue considers that a single claimant may in fact be part of a couple, the requests for information should centre on evidence relevant to this decision. The request for information is likely to be by letter and may include third parties. Employers and childcare providers may be contacted where this is relevant. The letter requesting information will give a date by which the Revenue wants to receive the information. If you fail to provide the information by this date, the Revenue will send out a further letter and a copy of their factsheet, Tax credits formal request for information, (WTC/FS3). This notice sets out the penalties that can be applied if the information is withheld without reasonable excuse. The Revenue considers destruction of documents by fire, flood or theft a reasonable excuse. Ill health may also be relevant. If the Revenue wishes to impose an initial penalty for failure to provide information it has to apply to the Tribunals Service, which will then summons you to an appeal at which it will be decided whether a penalty should be imposed. The initial penalty can be up to £300. You have a right of appeal (to the Social Security Commissioners) against the decision to impose the penalty. A further penalty of £60 per day can be imposed for continuing delay. Powers where fraud is suspected Revenue powers are strengthened when serious fraud is suspected. In such cases, the Special Compliance Office will usually be involved and the claimant may be interviewed under caution. The Special Compliance Office is a department of HM Revenue and Customs which investigates serious tax fraud. You will be given an opportunity to get professional help – usually from a solicitor. You will be told why your claim is being investigated. HM Revenue and Customs also has the right to apply to the court for an order that documents be delivered to the Tax Credit Office. It is a criminal offence to conceal, destroy, falsify or otherwise dispose of documents requested. There is also a right to apply to the court for a warrant to enter and search premises. In addition, claimants involved in fraud may be prosecuted through the courts. Penalties If the examination or enquiry reveals that you have failed to tell the Revenue within one month of certain changes of circumstances, you may be charged a penalty of up to £300. You are required to notify the Revenue within one month of certain changes of circumstances, such as becoming part of a couple (see CPAG in Scotland leaflet, Tax credits – reporting changes of circumstances for more information). If the examination or enquiry finds that you have fraudulently or negligently made an incorrect statement or declaration or supplied incorrect information or evidence, the Revenue can impose a penalty of up to £3,000. If you fail to provide information requested, the Revenue can apply to the Tribunals Service for a hearing at which it will be decided whether a penalty should be imposed. The initial penalty can be up to £300. A further penalty of £60 per day can be imposed for continuing delay. For more information, see CPAG in Scotland factsheet Tax credits and penalties. Leaflets used during tax credit checksThe following leaflets have been prepared by HM Revenue and Customs for use in tax credit checks. You can get these from the HMRC website, www.hmrc.gov.uk, or a local tax enquiry centre.
There is also official guidance for decision makers on the HMRC website on all aspects of tax credit checks called the New Tax Credits Claimant Compliance Manual. Further information and adviceCPAG in Scotland Tax Credits Project summary webpages Child
Poverty Action Group in Scotland Email: advice@cpagscotland.org.uk Website: www.cpag.org.uk
CPAG in Scotland’s advice line is only for advisers. If you are having problems with your own tax credit or benefit claim and are in need of advice you should contact your citizens advice bureau or other local welfare rights service.
HM Revenue
and Customs (formerly the Inland Revenue) The Revenue
publishes a leaflet, WTC5, Help with the costs of childcare. © Child
Poverty Action Group, April 2008 This fact sheet was last updated April 2008
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