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HMRC internal manual

Claimant Compliance Manual

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HM Revenue & Customs
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Penalties and interest: more than one type of penalty incurred

Your examination or enquiry might establish more than one offence so that more than one type of penalty is involved. In these circumstances you will need to work out each penalty separately taking the offences in the order in which they occurred. Despite the different offences and types of penalties it will count as one challenge by HMRC.

Example 1

Emily made her first claim for tax credits on 19 April 2010 and was awarded £7460 for 2010/2011. On 1 November 2010 you open a S16 examination because you have information that in addition to her 2009/2010 earnings from the local beauty salon she also worked at the local supermarket. It appears that Emily has understated her 2009/2010 earnings and the potential amount involved does not allow this to be worked as a discrepancy examination. You telephone Emily on 22 November 2010 and during your telephone call you establish that not only was her claim incorrect because she understated her earnings but she also failed to notify a reduction in her child care costs in June 2010.

As a result of the incorrect claim Emily had over-claimed credits of £4657.20 her award should have been for £2802.80. Had she notified the reduction in child care costs her award would have reduced by a further £1404. Emily has incurred two different types of penalties.

There is then the penalty for failing to notify a change in circumstances. This is Emily’s first failure to notify a change in circumstances so the penalty is £100. There is no abatement for this type of penalty.

The total penalties will be £1390 + £100 = £1490 Emily will be warned that any future incorrect statements or failure to notify a change of circumstances are likely to result in much larger penalties.

Example 2

Nigel and Natasha claimed tax credits for 2009/2010 but an enquiry established the S17 notice was incorrect because Natasha had failed to disclose her earnings from a second job. The S17 notice which they signed on 29 May 2010 sets the final award for 2009/2010 and the provisional award for 2010/2011.

A separate risk had been identified for 2010/2011 so in addition to the enquiry for 2009/2010 an examination had been opened for 2010/2011. In addition to the adjustment for the 2009/2010 income the review of 2010/2011 established that on 31 May 2010 (2 days after the S17 notice) Natasha had reported a change of circumstances. She had advised they were paying £100 per week child care costs starting from that day but this turned out to be false. They were not paying any child care costs and the details given were fictitious.

There will now be two different S31(1)(a) penalties each of a maximum of £3,000. One penalty is for the incorrect S17 notice and the other is for an incorrect notification of a change of circumstances. Even though the review covered two years this still counts as a first challenge but there are now two penalties of a maximum of £3,000 each.