Tax Credits: Penalties and interest.
This section of the website provides basic information about penalties and interest.
It is worth having a quick look at the HMRC guide on this - WTC 7 Tax Credit Penalties.
HMRC has power to seek or impose financial penalties for various types of default. The penalties and their maximum amounts are:
- for fraudulent or negligent misstatement, £3,000;
- for failure to report a change of circumstances which it is obligatory to report within the relevant time limit, £300;
- for failure to supply or delay in supplying information when required to do so in an examination, enquiry, or in response to an end-of-year notice, or in accordance with regulations which apply specifically to employers, £300;
- a daily penalty for each day that a failure or delay continues, £60 per day.
Failure or delay penalties can only be exacted from the person directed to supply the information, ie the claimant or the employer, but penalties for fraudulent and negligent mis-statement can be levied on any person who makes an incorrect statement or declaration in or in connection with a claim for a tax credit, a notification of a change of circumstances, or in response to an end-of-year notice. This can in particular include an agent.
Initial penalties for failure to supply or delay in supplying information can only be imposed by the First-tier Tribunal, to which HMRC must apply, and against whose decision a right of appeal lies to the Upper Tribunal. All other penalties can be determined – i.e. directly imposed – by the Board of HMRC.
The maximum penalty for fraudulent or negligent mis-statement by a couple in a joint claim may be imposed on both partners provided that in aggregate the penalty does not exceed £3,000. In other words, they cannot between them be required to find more than £3,000. But by statute if one of them was not, and could not reasonably have been expected to be, aware of the default by the other, that one is not liable to a penalty.
HMRC have the power to mitigate penalties or remit any penalty. For enquiries or examinations started after 6 April 2008, the level of penalty will depend on the behaviour involved. The claimant compliance manual gives further information.
Under the tax credit regime interest can only be charged in two circumstances.
- HMRC can at their discretion charge interest on overpayments, but only if fraud or neglect are involved; and
- Interest is chargeable on overdue penalties, but HMRC has powers to mitigate.
Last reviewed/updated 1 July 2022