Newly released data for tax credits from the 2018 to 2019 tax year show 3.1 million tax credit awards made (around 1.6 million for working tax credit and around 2.8 million for child tax credits). HMRC opened around 13,500 enquiries on these claims and imposed penalties on around 12,000. The number of resultant prosecutions from enquiries above the penalties was limited to around 160 cases.
The figures show that penalties are level with the year before, though much fewer enquiries were opened. There was a sixteen percent drop in the number of tax credit enquiries opened between 2017/2018 and 2018/2019.
Tax credit enquiries can be conducted under Sections 19 and 20 of the Tax Credit Act of 2002. Section 19 allows the Taxman to open an enquiry if they find any information regarding a claim to be incorrect, but there are time limits imposed on when an enquiry can be opened/closed.
Section 20 enquiries are opened if the claimant's income has been re-assessed and the tax award is deemed to be incorrect. Another reason for Section 20 enquiries is where HMRC believe there has been an element of fraud.