Penalties and interest: incorrect claims - penalty examples - enquiries or examinations
The following examples show how the amount of the penalty is established.
Colin applies for WTC and is awarded £4126 for 2012/2013. In December 2012 you open a Section 16 examination because the CCRO has identified that there are indications that he is not working 30 hours per week. Following your opening letter Colin attends a meeting and on challenge admits he does not work 30 hours per week. He only works 25 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 fraudulent/non fraudulent behaviour, so there is a penalty of 30% of the over-claimed tax credits. The amount of over-claimed tax credits is £4126, not the amount paid out between April and December. £4126 x 30% = £1237.80 penalty. The penalty is rounded down to the nearest £10 so the penalty is £1230.
A penalty of £1230 is appropriate and Colin will be told that any future incorrect application is likely to result in a larger penalty.
Rachel applies for WTC and CTC and is awarded £8,960 for 2012/2013. In October 2012 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 2012/2013 are revised to WTC of £0.00 and CTC of £3,435, giving an over-claim of £5,525. Rachel quickly agrees all of your computations. By December 2010 you are in a position to settle the enquiry.
This was fraudulent/non fraudulent behaviour. £5,525 multiplied by the penalty percentage of 30% = £1657.50 penalty. The penalty is rounded down to the nearest £10 so the penalty is £1650. A penalty of £1650 should be charged.
Rachel should also be told that any future incorrect claims could result in a larger penalty.
Lesley applied for WTC and CTC and is awarded £4960 for 2010/2011. The facts are identical to those in example 2 but in addition to the incorrect claim and end of year declaration for 2010/2011, Lesley submits an incorrect end of year declaration for 2011/2012 and this also omits her second job. The Section 19 enquiries for 2010/2011 and 2011/2012 are both opened in June 2012. Your penalties now need to include both years and a separate penalty should be considered for each claim. Although there is a repetition of fraudulent/non fraudulent behaviour, this is not a repetition following an examination or enquiry where we have challenged the claim. The errors should still be treated as fraudulent/non fraudulent behaviour, although Lesley should be told that a repetition in future years may result in a higher penalty.