Tax Credits and Penalties
What is a penalty?
Penalty – up to £300
Penalty – up to £3000
Relevant factors
How to challenge a penalty?
How are penalties collected?
What if you can’t afford to pay?
Further information and advice
What is a penalty?
The tax credit system allows the Revenue to impose financial penalties in certain situations. For example, if you fail to report certain changes of circumstances or if you ‘fraudulently or negligently’ give incorrect information. This leaflet explains when a penalty can be imposed, how much it might be and what you can do to challenge it.of poverty among children and families with children.
Penalty – up to £300
In some circumstances the Revenue can impose a penalty of up to £300. These are the situations when this can happen.
Failure to tell the Revenue about a notifiable change of circumstances
There are only certain changes that you must tell the Revenue about within one month. Changes which must be notified are as follows:
- You stop being part of a couple, or start being part of a couple
- Childcare costs stop or go down by £10 or more per week for 4 weeks in a row
- You stop working at least 30 hours per week
- You stop working at least 16 hours per week
- You no longer count as responsible for a child, e.g., they move out, leave full-time education, claim benefits in their own right
- You leave the UK permanently, or for more than 8 (or sometimes 12) weeks
- For child tax credit, you lose the right to reside
If you fail to tell the Revenue about one of these changes, and you do not have a reasonable excuse, the Revenue can impose a penalty of up to £300.
Example
Ben is a disabled worker, working for 35 hours per week. He is claiming working tax credit. In October his hours drop to 28 per week. He doesn’t tell the Revenue until he returns his annual declaration in the following May. The Revenue may decide to impose a penalty on Ben for failing to tell them about this change in his circumstances.
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Failure to provide information or evidence requested
Sometimes the Revenue decides it needs more information or evidence from you. This might be at the start of your claim, or at some point after tax credits have been awarded. Usually the Revenue will send you an ‘informal request’ for the information/evidence. If you don’t comply then it may then decide to send a ‘formal request’. If you still fail to comply with this without reasonable excuse, it is possible for a penalty of up to £300 to be imposed. However, the Revenue must refer your case to an independent appeal tribunal for the decision on a penalty in this situation. If an initial penalty is imposed, then a further £60 can be added for each day you continue not to supply the requested information/evidence.
Failure to comply with a requirement regarding a final notice
The final notice is the form that the Revenue sends out after the end of the tax year to check the previous year’s entitlement and renew the claim for the current year. Many claimants are instructed to return an annual declaration form by a particular date (usually 31 July). The Revenue can impose a penalty of up to £300 if you fail, without a reasonable excuse, to comply with any of the final notice requirements (such as returning the annual declaration). However, the Revenue says it will not normally impose a penalty this situation as it simply stops payments if the annual declaration is not returned.
What is a reasonable excuse?
The Revenue should only think about imposing a penalty if you do not have a ‘reasonable excuse’. This might be serious illness, bereavement, wrong advice from the Revenue, postal disruption, or any other event or circumstance has prevented you from complying. The Revenue says that being too busy will not be accepted as a reasonable excuse.
Discretion
Remember: £300 is the maximum penalty which the Revenue can impose in these situations. Even if you do not have a reasonable excuse, the Revenue can decide that there should be no penalty, or that the penalty should be less than £300.
Remember: you always have a right of appeal against the decision to impose a penalty and against the amount of the penalty
Penalty – up to £3000
A much higher penalty of up to £3000 can be imposed where the Revenue decides that you have either fraudulently or negligently given an incorrect statement or declaration, or fraudulently or negligently given incorrect information or evidence.
What counts as negligence?
The Revenue says that if you didn’t take reasonable steps to make a correct claim then it can be negligence. ‘Plain carelessness’ can be negligence.
Example
Sophia claims tax credits. She receives child tax credit and working tax credit, including the childcare element. This is based on the information she gave on her claim which was that she has childcare costs of £90 per week. The Revenue checks her case and finds that she only has these costs during term-time and none during the school holidays. The Revenue may find that she ‘negligently’ gave incorrect information and may decide to impose a penalty.
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Joint claims
Even if it is your partner in a joint claim who has given incorrect information, a penalty can be imposed on you, unless you didn’t know, and couldn’t have reasonably been expected to know that your partner had given incorrect information. However, if both partners in a joint claim are penalised, the total penalties can amount to no more than £3000.
Relevant factors
Although the Revenue has considerable powers to impose penalties, it will often decide not to do so. Also, where a penalty is imposed, it will often be less then the maximum allowed. The Revenue says that whether a penalty is imposed, and the level of any penalty, will depend on factors such as the amount of any resultant overpayment, any previous penalties, and the extent of your ‘cooperation’. It also says that no penalty should be imposed where the award was not incorrect, even where there has been fraudulent or negligent behaviour.
How to challenge a penalty?
You can appeal to an independent tribunal against the decision to impose a penalty. If the penalty is for failing to provide information/evidence, it will have been imposed by a tribunal. In this case the appeal is to the social security commissioners. The tribunal/commissioner can decide that:
- There should be no penalty
- That the penalty is correct
- The amount of the penalty should be reduced because it is excessive
- The amount of the penalty should be increased because it is insufficient.
Possible appeal arguments:
- That you had reasonable excuse for failing to report a change or failing to respond to a request for information/evidence. There is no legal definition of ‘reasonable excuse’. The Revenue’s own guidance gives some examples of situations which will provide reasonable excuse, for example, very serious ill-health or bereavement. However, this is only guidance and many other situations may be accepted by an appeal tribunal/commissioner. It is therefore worth fully explaining any relevant circumstances, such as ill-health, family crisis, or information not being available.
- That, although you gave incorrect information, it was not as a result of negligence and that you have not acted fraudulently. For example, the Revenue has decided that your single claim was made fraudulently because you have been living as part of a couple, but you fundamentally disagree with this decision.
Example
Ben
The Revenue imposes a penalty on Ben for failing to report a drop in his working hours. The maximum penalty is £300 and the Revenue decides that a £200 penalty is appropriate. Ben gets advice and the adviser suggests that he should appeal against this decision. He argues that he had a reasonable excuse because of literacy problems, coupled with family difficulties (his mother, who normally helps him with forms, had been very ill during the relevant period and he had been helping to care for her).
Sophia
The Revenue imposes a penalty on Sophia for ‘negligently’ giving incorrect information in relation to childcare costs. The maximum penalty is £3000 and the Revenue decides that a £1000 penalty is appropriate. Sophia appeals against this decision, arguing that, although she did give misleading information, she did not do so negligently. She found the forms difficult to understand and, while she did put the wrong figure on her claim form, she attached a letter with the form stating that she had no childcare costs during school holidays. This letter seems to have been ignored by the Revenue.
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How are penalties collected?
Penalties are collected directly from you – they are not collected along with overpayments or by deduction from your tax credits. Although the Revenue will make a demand for the full amount, you should be able to arrange to pay by instalments. Sometimes the Revenue will add on interest if you do this. If you don’t pay, the Revenue can take civil action to recover the money from you.
What if you can’t afford to pay?
If you disagree with a penalty decision, you should appeal (see above). If, however, you don’t win your appeal, or you don’t feel you have any grounds to appeal, you will be left with a penalty to pay. However, the Revenue has the discretion not to recover a penalty. If you cannot afford to pay you should argue that the Revenue should waive the penalty on the grounds of severe hardship. You should fully explain your financial circumstances and what might happen if you have to pay the penalty (e.g., detrimental effects on your health, impact on ability to pay for essentials).
Further
information and advice
CPAG
in Scotland Tax Credits Project summary webpages
Child
Poverty Action Group in Scotland
0141 552 0552 advice line for advisers on benefits and tax credits,
Monday, Tuesday, Wednesday and Thursday 10am to 12pm
Email: advice@cpagscotland.org.uk
email advice for advisers on benefits and tax credits
Website: www.cpag.org.uk/scotland/taxcredits/
for more tax credit leaflets from CPAG in Scotland
 CPAG
publishes the Welfare
Benefits and Tax Credits Handbook, a comprehensive guide
to benefits and tax credits for claimants and advisers.
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)
Tax Credit Helpline 0845 300 3900
(textphone 0845 300 3909)
For more information and guidance on changes you should report please see the Revenue’s checklist, Check your tax credits award (TC602(SN)) and the guidance How to complete your tax credits form (TC600 Notes). Both are available at www.hmrc.gov.uk
© Child
Poverty Action Group, Sepetmber 2007
CPAG in Scotland’s Tax Credit Project is funded by the Scottish Government.
This fact
sheet was last updated September 2007
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