Tax credits fraud

This section of the site explains the provisions relating to tax credits fraud. The Welfare Reform Act 2012 has made several amendments to this area of the system.

Offence of fraud

Loss of working tax credit

Legislation
Loss of WTC for benefit offences
Loss of WTC for repeated offences
Appeal rights

WRA 2012 provisions

Cautions
Investigation of fraud
Information sharing
Disclosure of information relating to offences

Offence of fraud

Section 35 Tax Credits Act 2002 sets out the offence of fraud.

Under Section 35, a person commits an offence of fraud if ‘he is knowingly concerned in any fraudulent activity undertaken with a view to obtaining payments of a tax credit by him or any other person’.

A person who commits an offence under Section 35 can be tried summarily or by indictment. On summary conviction they will be liable to imprisonment for a term up to 6 months, a fine not exceeding the statutory maximum or both. On conviction by indictment they can be imprisoned for a term not exceeding 7 years, given a fine or both.

Section 35 will be amended substantially by Section 124 Welfare Reform Act 2012. Originally, these amendments were to be brought in from June 2012 (via commencement order number 2 ). However, an amended commencement order stopped Section 124 from coming into force in June 2012.

When it does come into force, if the payments of tax credits involved are £20,000 or less, the offence will be triable summarily only. Upon conviction of an offence summarily under the amended Section 35, a claimant could be given a prison sentence not exceeding 51 weeks (England and Wales) or 6 months (Scotland and Northern Ireland) or a fine not exceeding level 5 on the standard scale.

If the amount is above £20,000 then it will be tried either on indictment or summarily. If the person is convicted summarily under the future Section 35 amendments they can be given a prison sentence not exceeding 12 months (England and Wales) or 6 months (Scotland and Northern Ireland) or a fine not exceeding the statutory maximum. If the conviction is on indictment, the legislation will allow a fine, imprisonment (up to 7 years) or both.

Loss of working tax credit

Legislation

Section 120 Welfare Reform Act 2012 introduced four new sections into the Tax Credits Act 2002 that relate to fraud. The new sections are 36A, 36B, 36C and 36D. According to the explanatory notes to the WRA 2012, the new provisions are intended to provide a more uniform imposition of penalties following convictions for benefits and tax credits fraud. They follow similar provisions in the benefits system under SSFA 2001 and effectively mean that a person can be disqualified from working tax credit (not child tax credit) for a period of time where certain offences are committed.

Section 120 was brought into effect by commencement order number 7 from February 2013 for the purposes of making regulations and orders and from 6 April 2013 with respect to all other provisions.

To support the commencement of Section 36A, 36B, 36C and 36D TCA 2002, the Loss of Tax Credits Regulations 2013 were introduced which specify the prescribed date in those sections and set the disqualification period (see below).

Loss of working tax credit for benefit offences

The first thing to note is that these provisions only apply to working tax credit. This includes the childcare element of WTC but excludes any child tax credit.

Section 36A and 36B TCA 2002 provide for a loss of WTC in certain circumstances where a person is convicted of certain benefit offences, accepts an administrative penalty or is cautioned for benefit offences. This means that even though the person is entitled to WTC for the period, WTC will not be payable during the ‘disqualification period’.

The length of the disqualification period and the amount of WTC lost depends on the type of offence and whether the claim is single or joint. The following table provides a summary of possible outcomes under Section 36A.

 

Single
claim

Joint
claim

Notes

Convicted of one or more benefit offences – offences are ‘relevant offences’

Loss of all WTC starting 30 days after HMRC are notified of the conviction by DWP or a Local Authority and ending after 3 years

Loss of 50% of WTC starting 30 days after HMRC are notified of the disqualifying event by DWP or a Local Authority and ending after 3 years

Benefit offence is defined in Section 36A(1). Relevant offence takes its meaning from Section 6B Social Security Fraud Act 2001 (as amended by Section 118 WRA 2012)

Convicted of one or more benefit offences – offences are not ‘relevant offences’

Loss of all WTC starting 30 days after HMRC are notified of the conviction by DWP or a Local Authority and ending after 13 weeks

Loss of 50% of WTC starting 30 days after HMRC are notified of the disqualifying event by DWP or a Local Authority and ending after 13 weeks

Benefit offence is defined in Section 36A(1).

Accepts an administrative penalty

Loss of all WTC starting 30 days after HMRC are notified of the conviction by DWP or a Local Authority and ending after 4 weeks

Loss of 50% of WTC starting 30 days after HMRC are notified of the disqualifying event by DWP or a Local Authority and ending after 4 weeks

Benefit offence is defined in Section 36A(1).

 

Cautioned in respect of one or more benefit offences

Loss of all WTC starting 30 days after HMRC are notified of the conviction by DWP or a Local Authority and ending after 4 weeks.

Loss of 50% of WTC starting 30 days after HMRC are notified of the disqualifying event by DWP or a Local Authority and ending after 4 weeks

Benefit offence is defined in Section 36A(1).

 

Section 36B TCA 2002 contains a number of supplementary provisions covering situations where a conviction is later quashed, agreement to an administrative penalty is withdrawn or an appeal Tribunal decides the overpayment is not due or not recoverable.

Loss of working tax credit for repeated offences

Section 36C and 36D TCA 2002 provide for a loss of WTC in certain circumstances where a person is convicted of repeated benefit offences (as opposed to Regulation 36A which covers single benefit offences).

Where the following conditions are met, there will be a loss of tax credits. This means that even though there is entitlement no payments of WTC will be made during the disqualification period.

Note that this provision does not apply if any of the offences are ‘relevant offences’ under the Social Security Fraud Act 2001.

The disqualification period is 26 weeks. The period starts 30 days after the date HMRC are notified of the latest conviction by the authority responsible for the bringing the current proceedings.

However, where a benefit offence is preceded by two previous offences, where the earliest offence occurred within five years of the second offence, which itself occurred within five years of the current offence – the disqualification period runs for 3 years.

Example 1

Steven was convicted of a benefit offence on 1 October 2013. He had previously accepted an administrative penalty for an earlier offence in 2010. He has no other convictions, penalties or cautions. HMRC are notified on 1 December of Steven’s latest conviction. Steven will not be paid WTC for a period of 26 weeks after 1 December.

Example 2

John was convicted of a benefit offence on 1 October 2013. He had previously accepted an administrative penalty for an earlier offence in 2010. In 2007 he was cautioned for a benefit offence. HMRC are notified on 1 December of John’s latest conviction. John will not be paid WTC for a period of 3 years beginning of the 1 December.

The difference between the two examples is that John had a further ‘disqualifying event’ (in his case a caution) in the five years before the administrative penalty – it was his third offence where as it was Steven’s second.

As with Section 36A, the Loss of Tax Credits Regulations 2013 provide that in the case of a joint claim, only 50% of the WTC is lost during the disqualification period.

If someone is convicted of more than one offence in a set of proceedings, those offences are only counted once for the purposes of 36C.

Section 36D TCA 2002 contains a number of supplementary provisions that cover several situations including what happens when a conviction is later quashed.

Appeal rights

A decision not to pay WTC under either Section 36A or 36C is an appealable decision under Section 38 TCA 2002. More information on appeal rights can be found in the appeals section .

WRA 2012 provisions

Cautions

Section 121 WRA 2012 amends new Section 36A Tax Credits Act 2002 to remove reference to cautions in 36A(1)(c) as DWP will no longer be issuing cautions for new benefit offences. This section has not yet been enacted.

Investigation of fraud

Section 122 WRA 2012 amends Sections 109A, 109B and 109C of the Social Security Administration Act 1992 to treat tax credits as ‘relevant social security’ benefits for the purposes of the definition of a benefit offence and so that the Tax Credits Act 2002 is treated as relevant social security legislation under those sections.

Sections 109A, 109B and 109C of SSAA 1992 provide investigators with a number of powers to look at whether a benefit is properly payable. Prior to this change, tax credits were not classed as relevant social security benefits and the definition of benefit offence did not extend to them so the Secretary of State could not investigate tax credit fraud.

Section 122 was enacted from 6 June 2012.

Information sharing

Section 123 WRA 2012 allows information sharing for the purposes of preventing tax credits fraud by amending Section 122B of the Social Security Administration Act 1992. Section 122B allows DWP to receive, from Government departments and those providing services to them, certain information for the prevention, detection, investigation or prosecution of offences relating to social security. This amendment extends those powers to tax credits.

Section 123 was enacted from 6 June 2012.

Disclosure of information relating to offences

Section 125 WRA 2012 further amends the SSAA 1992 to ensure that it is an offence for DWP staff to disclose information unlawfully, this now includes information relation to the investigation or prosecution of offences relating to tax credits.

Section 125 was enacted from 6 June 2012.

Published 12 April 2013