18 August 2017

Tax credits penalties - Upper Tribunal Decision


This recent decision of the Upper Tribunal explores the application of a penalty in a tax credit case where the claimant was determined to have been negligent.

HMRC had initially imposed a penalty of £1360 and this decision replaced it with a penalty of £100.

Reviewing the facts of the case for the second time, having previously set aside the decision of the first tribunal and referred the matter for a fresh hearing whereby the penalty was changed from £1360 to £500, Judge Levenson gave the claimant permission to appeal “for the sole purpose of enabling the amount of the penalty assessed by the First-tier Tribunal to be reviewed by the Upper Tribunal”, and emphasised that ‘..., paragraph 2 of Schedule 2 to the Tax Credits Act 2000 provides a right of appeal to the Upper Tribunal against the amount of a penalty, such right being separate from and in addition to any right of appeal on the basis of an error of law. That additional right may only be exercised with the permission of the First-tier Tribunal or the Upper Tribunal, but on such an appeal the Upper Tribunal has the same powers that are conferred by paragraph 2 on the First-tier Tribunal.’

He also argues that calculating the level of penalty to be imposed is a matter of judgment and in cases that do not rely on fraud, it is not necessary to create additional hardship for the claimant:

‘When it comes down to it, it is a matter of judgment. The penalty imposed is in addition to the requirement to repay any overpayment. I agree that it is necessary to “mark the seriousness of the issue”, but it is not necessary in a case that depends on negligence rather than fraud (and where there has been no previous such occurrence) to create additional hardship. A penalty of £500 seems to me to do that in the present case. A penalty of £100 is more than a nominal penalty but not so great as to be disproportionate or create inappropriate additional hardship. For that reason I allow the appeal and make the decision as set out in paragraph 1 above’