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Once you have established that the customer has made an incorrect claim or declaration, or supplied incorrect information, and they did this negligently the penalty is calculated using the following process for each year covered by an examination or enquiry.

• Establish the behaviour which gave rise to the overpayment and the amount of the over-claim, see CCM10710.
• Multiply the tax credits over-claimed by the penalty percentage for that behaviour category, see CCM10710.
• (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
• If the penalty calculated is more than 拢3,000 then the penalty is capped at 拢3,000 (the maximum penalty for tax credits).

If you have determined the behaviour is fraudulent/non fraudulent and you are using an S17 notice to finalise one year and set payments for the CY, see CCM10810

Example 1

A customer put down their income as 拢10,000 because they misread their P60 - income was 拢20,000. As this was clearly not a realistic figure for income, this was fraudulent/non fraudulent behaviour (30% penalty) which resulted in an over-claim of 拢4517.

• Multiply the over-claim by the penalty percentage: 拢4,517 x 30% = 拢1355.10
• Round the amount down to the nearest 拢10 = 拢1350.

The tax credits maximum penalty of 拢3,000 has not been exceeded. The penalty chargeable is therefore 拢1350.

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Example 2

A customer put down childcare costs when actually they did not pay for childcare. This was fraudulent/non fraudulent behaviour (30% penalty) which resulted in an over-claim of 拢5,000.

• Multiply the over-claim by the penalty percentage: 拢5,000 x 30% = 拢1500.
• Round the amount down to the nearest 拢10 = 拢1500
• (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

The tax credits maximum penalty of 拢3,000 has not been exceeded. The penalty chargeable is therefore 拢1500.