Section 25: Payments of working tax credit by employers

105.     Section 25 gives the Board power to make regulations requiring employers to pay working tax credit, or prescribed elements of working tax credit, to their employees.

106.     The regulations may, in particular, require employers to:

• make payments of working tax credit as notified by the Board;

• produce information or evidence to verify payments of working tax credit; and

• provide employees with information (for example, on their pay statements) relating to the tax credit paid to them.

107.     The regulations may also provide for:

• the payment of working tax credit to employees by the Board in certain circumstances;

• the funding by the Board of employers who are notified that they have to pay working tax credit. This funding may be provided direct or through set-off against income tax, national insurance contributions and student loan deductions for which the employer is accountable to the Board;

• recovery of overpayments of funding to employers;

• calculation and payment of interest on amounts due to or from the Board;

• appeals relating to matters which are covered in the regulations.

108.     This section also allows the Board to exercise its information powers under section 20 of the Taxes Management Act in relation to employers' compliance with regulations made under this section. Section 20 of the Taxes Management Act 1970 allows an inspector to require the production of documents. Those powers are applied with appropriate modifications, to treat references to employers and to tax liabilities as though they were references to employers and payments of working tax credit. Section 20B, which places restrictions on this power, and section 20BB, which makes it an offence to falsify or destroy documents required, are also applied.

Section 26: Liability of officers for sums paid to employers

109.     The purpose of this section is to prevent officers of bodies corporate from using for some other purpose funding provided by the Board to enable them to pay tax credits to their employees. In particular, it deals with the situation where officers deliberately set out to exploit limited liability through "phoenixism" (the practice of carrying on what is effectively the same business successively through a series of companies, each of which in turn becomes insolvent with substantial debts to the Government).

110.     This section allows for regulations to be made to deal with cases where a body corporate has received funding from the Board for the purposes of paying the working tax credit. If that body corporate fails to repay the funds to the Board and the provision of the funding or the failure to repay appears to the Board to be attributable to the fraud or neglect of one or more of the officers of that body corporate, regulations may provide for the culpable officers to be made personally responsible for that debt.

Section 27: Rights of employees

111.     Section 27 gives effect to Schedule 1. This provides for the rights of employees not to suffer unfair dismissal or other detriment as a result of the obligations imposed on employers by regulations made under section 25.

Schedule 1: Rights of employees

112.     Paragraph 1 amends the Employment Rights Act 1996 (ERA).

113.     Paragraph 1(2) inserts a new section 47D into ERA. It provides an employee with the right not to suffer detriment as a result of any act, or failure to act, by his employer done on the ground that:

• the employee had taken action to enforce the rights conferred on him by regulations under section 25 of the Tax Credits Act 2002 (payments of working tax credit to be made by employers);

• the employer had incurred a penalty or penalty proceedings had been brought against the employer under the Tax Credits Act 2002; or

• the employee was entitled, or will or may in future be entitled, to working tax credit.

114.     New section 47D(2) protects the employee from detrimental action whether or not he has the right which he is claiming and whether or not his right has been infringed, as long as his claim to the right and its infringement is made in good faith. New section 47D(3) brings within the scope of subsections (1) and (2) those who are employees for the purposes of the Tax Credits Act 2002 but not for the purposes of ERA. The purpose of subsection (4) is to preclude those who are employees for the purposes of ERA from claiming under section 47D when the detriment they suffer is termination of their employment contract. Such a termination will always be a dismissal within the meaning of Part 10 of ERA.

115.     Paragraph 1(3) amends section 48 of ERA to give an employee the right to complain to an employment tribunal if he has been subjected to detriment in contravention of new section 47D of ERA.

116.     Paragraph 1(4) amends section 49 of ERA to ensure that, where a complaint is made under section 48, any compensation must not exceed the amount that would have been payable if the employee had been dismissed for the reasons specified in section 104B of ERA (inserted by paragraph 3 of the Schedule).

117.     Paragraph 1(5) extends the right under section 47D to members of the armed forces and paragraph 1(6) extends it to staff of the House of Lords and House of Commons.

118.     Paragraph 2 makes equivalent amendments to the Employment Rights (Northern Ireland) Order 1996.

119.     Paragraph 3 amends the provisions of ERA relating to unfair dismissal.

120.     Paragraph 3(2) inserts a new section 104B into ERA so as to provide that an employee will be regarded as having been unfairly dismissed if the dismissal arises because:

• the employee has taken action to enforce the rights conferred on him by regulations under section 25 of the Tax Credits Act 2002;

• the employer has incurred a penalty or penalty proceedings have been brought against the employer under the Tax Credits Act 2002; or

• the employee is entitled, or will or may in future be entitled, to working tax credit.

121.     Paragraph 3(3) inserts a new subsection (7B) into section 105 of ERA, which provides that selecting an employee for redundancy on certain grounds amounts to unfair dismissal. The new subsection ensures that selecting an employee for redundancy because he has enforced or attempted to enforce any of the rights referred to in the new section 104B(1) of ERA amounts to unfair dismissal.

122.     Paragraph 3(4) inserts a new paragraph (gh) into section 108(3) and section 109(2) of ERA. This means that the right not to be dismissed for enforcing a right to payment of tax credits under the Tax Credits Act 2002 will be one of the rights which apply from the day an employee starts work and without any age limit. Without these amendments, section 108(1) would mean that the right would not apply until an employee had been continuously employed for two years and section 109(1) would mean that the right would not apply to those over their normal age of retirement.

123.     Paragraph 4 serves exactly the same function in relation to employment rights in Northern Ireland as paragraph 3 serves in relation to Great Britain.

Section 28: Overpayments

124.     Subsection (1) of section 28 establishes that an overpayment arises when the amount paid out in tax credits to a claimant or claimants in a tax year exceeds their entitlement to tax credits for that year and gives the Board the power to decide whether to recover the overpayment.

125.     Subsections (3) and (4) give the Board the power to decide who should repay the overpayment in particular circumstances. In particular, it enables the Board to decide from which partner in a couple it should seek to recover the overpayment or how much to seek to recover from each partner.

126.     The powers of the Board under subsections (1) to (4) are only available once entitlement, and thus the amount of any overpayment, has been determined in accordance with sections 18 to 21. This section also gives the Board certain powers in relation to overpayments, or expected overpayments, before entitlement has been finally established in this way. Subsection (5) deals with cases where it appears likely that an overpayment on an award will arise. It enables the Board to amend that award or any other award of any tax credit with a view to reducing or eliminating that overpayment. Subsection (6) allows the Board to treat as an overpayment an amount paid under an award that is subsequently terminated on the ground that the claimant or claimants never satisfied the essential requirement under section 8(1) or 10(1) for there to be any entitlement to the tax credit.

Section 29: Recovery of overpayments

127.     This section sets out the framework for recovering overpayments of tax credits. It provides that a notice must be given to the person who is liable to repay the overpayment, setting out the amount to be repaid and the manner in which it is to be repaid. The section provides for the Board to decide whether an overpayment is to be repaid by:

• direct payment within 30 days (subsection (3));

• reducing subsequent awards of tax credits made to the person who is liable to repay (subsection (4)); or

• for PAYE taxpayers, treating the overpayment as an amount of tax due and payable which is to be recovered through PAYE as if it were an underpayment of tax for the previous tax year (subsection (5)).

Section 30: Underpayments

128.     This section makes clear that, where the amount paid out in respect of a tax credit for a tax year is less than the entitlement of a person or persons to that tax credit as determined in accordance with sections 18 to 21, the difference is to be paid to them, or to whichever of them is prescribed. Where the claim for the tax credit was made by one person on behalf of another, regulations are to set out the person to whom the amount of the underpayment is to be paid.

Section 31: Incorrect statements etc

129.     Section 31 provides for a penalty of up to £3,000 to be imposed on any person (including an employer in relation to his responsibilities under section 25) who fraudulently or negligently provides a false or incorrect statement or incorrect information or evidence in respect of a claim and any associated notifications, notices and requirements.

130.     For couples, such a penalty may be imposed on either partner, but the total of the penalties imposed on both partners must not exceed £3,000 (subsections (2) and (4)). No penalty can be imposed on a partner who could not reasonably have been expected to have been aware of the fraud or neglect giving rise to the penalty (subsection (3)).

131.     Penalties may also be imposed on a person who has acted for another in relation to a claim, notification or notice, where they have acted fraudulently or negligently (subsection (5)).

Section 32: Failure to comply with requirements

132.     This section provides that penalties may be imposed on a person (including an employer) who fails to comply with a requirement to supply information or evidence. An initial penalty of up to £300 may be imposed by the relevant appellate body after the Board have commenced proceedings for it (subsection (2)(a) and paragraph 3 of Schedule 2). Thereafter, the Board may impose daily penalties of up to £60 (subsection (2)(b)). Such penalties cannot be imposed after the information or evidence has been supplied (subsection (4)). This section also provides that a penalty of up to £300 may be imposed on a person who fails to notify a change of circumstances which may decrease the rate at which he is entitled to a tax credit in accordance with regulations under section 6 (subsection (3)). A person is not to be regarded as failing to supply information or evidence or giving the notification if it was provided within a time limit set or revised by the Board or the person had a reasonable excuse for the failure and provided the information or evidence without delay once the excuse no longer applied (subsection (5)).

Section 33: Failure by employers to make correct payments

133.     This section sets out the penalties that may be imposed on employers if they fail to comply with their obligations to make payments under regulations made under section 25. Where the employer refuses or repeatedly fails to pay tax credits to employers in accordance with regulations and the Board therefore have to make the payments, the employer is liable to a penalty of up to £3,000. Similarly, a penalty of up to £3,000 may be imposed where, by reason of his fraud or neglect, the employer pays the wrong amount of tax credit to an employee for a tax year. Only one of these penalties can be imposed on an employer in respect of an employee.

Section 34: Supplementary

134.     This section gives effect to Schedule 2, which contains various supplementary provisions relating to penalties.

Schedule 2: Supplementary

135.     This Schedule deals with the procedural and supplemental provisions relating to penalties.

136.     Paragraph 1 provides the framework for the Board to make determinations of penalties. It provides that the Board may make a determination of a penalty under section 31, 32(2)(b) or (3) and 33 at such level within the statutory maximum as they consider appropriate. It provides for a notice of the determination to be given to a person on whom a penalty is imposed, stating the date of issue and details of their right to appeal. The amount of a penalty can only be altered on appeal. A penalty is due and payable 30 days after the date on which the notice of it is given.

137.     Paragraph 2 covers appeals against penalty determinations under paragraph 1. On appeal, the Commissioners may reduce, confirm, increase or set aside the penalty. There is a right of appeal to the High Court or the Court of Session against the Commissioners' decision.

138.     Paragraph 3 concerns penalty proceedings before the Commissioners. It provides that the Board may take penalty proceedings before the Commissioners for a penalty under section 32(2)(a). The proceedings must be initiated by notice in writing to the Commissioners.

139.     Paragraph 4 provides that an appeal against the determination of a penalty in proceedings under paragraph 3 must be made to the appropriate civil court and that the court may set aside, confirm, reduce or increase the penalty.

140.     Paragraph 5 gives the Board the power to mitigate or entirely remit any penalty under Part 1 of the Act.

141.     Paragraph 6 sets out the time limits for imposing penalties under sections 31, 32 and 33. It provides that, for a penalty under section 31, a determination of the penalty must be made within one year of the latest of:

• the expiry of the time for starting an enquiry under section 19;

• the date on which an enquiry under section 19 is completed; and

• the date on which a decision on discovery is made under section 20(1) or (4).

142.     The time limit for imposing penalties under section 32 is one year after the latest of:

• the expiry of the time for starting an enquiry; and

• the date on which an enquiry is completed.

143.     For penalties under sections 31 and 32 in relation to the obligations on employers under section 25, and penalties under section 33, the penalty determination must be made, or proceedings started, within 6 years after the penalty was incurred or began to be incurred.

144.     Paragraph 7 sets out the provisions relating to the recovery of penalties. Sub-paragraph (1) allows for penalties to be recovered directly under the relevant provisions of the Taxes Management Act 1970. Sub-paragraph (2) allows for penalties to be recovered through tax codes

145.     Until the day appointed by order under section 63(1), the effect of that section is that, except in relation to penalties imposed on employers, appeals about penalties are to an appeal tribunal or to the Social Security Commissioner as appropriate, rather than to the General Commissioners or Special Commissioners or the High Court or Court of Session. Except in relation to penalties imposed on employers for failure to provide information, proceedings under paragraph 3 of this Schedule are to an appeal tribunal rather than to the General Commissioners or Special Commissioners.

Section 35: Offence of fraud

146.     This section establishes that knowingly being concerned in fraudulent activity in connection with obtaining payments of tax credit is a criminal offence. The offence is punishable by six months imprisonment and/or the statutory maximum fine on summary conviction, or by seven years imprisonment and/or a fine on conviction on indictment.

Section 36: Powers in relation to documents

147.     Section 36 gives the Board powers to obtain evidence in cases of suspected tax credit fraud and serious fraud. It does this by making available powers already conferred on the Board in relation to suspected serious tax fraud by sections 20BA, 20BB, 20C and 20CC of and Schedule 1AA to the Taxes Management Act 1970.

148.     Section 20BA of the Taxes Management Act 1970 allows the Board to apply to a circuit judge (in Scotland, a sheriff, and in Northern Ireland, a county court judge) for an order requiring the production of documents if there are reasonable grounds for suspecting that:

• an offence involving serious fraud in connection with, or in relation to, tax has been, or is about to be, committed; and

• documents which may be required as evidence for the purposes of any proceedings in respect of that offence are, or may be, in the power or possession of any person.

149.     Subsection (1) makes this power available in cases of suspected tax credit fraud. Section 20BB of the Taxes Management Act 1970, which makes it an offence to falsify documents required by order under section 20BA, and Schedule 1AA, which makes supplemental provision, are also applied.

150.     Section 20C of the Taxes Management Act 1970 gives the Board a power to apply to a circuit judge (or a sheriff or a county court judge) for a warrant authorising an officer of the Board to enter, search and remove information from premises if there are reasonable grounds for suspecting that an offence involving serious fraud in connection with, or in relation to, tax is being, has been or is about to be committed and that evidence is to be found on those premises. Subsection (2) makes this power available in cases where serious fraud in connection with tax credits is suspected. Section 20CC of the Taxes Management Act 1970 makes provision about procedural issues.

Section 37: Interest

151.     Subsection (1) of this section provides that interest may be charged on any overpayment of tax credits which arises from the fraud or neglect of a person to whom the award was made. The interest normally runs from 30 days after the end of the period allowed to confirm details of income in response to a notice under section 17(4). However, where an award has been terminated and an amount paid under that award is treated as an overpayment under section 28(6), the interest runs from the date of the decision under section 16(1) to terminate the award.

152.     Subsection (5) provides that any penalty imposed in relation to tax credits carries interest from the date the penalty is due and payable, although the Board have the discretion to mitigate such interest.

Section 38: Appeals

153.     Section 38 provides for a right of appeal against a decision made by the Board under the provisions of Part 1, the determination of a penalty under paragraph 1 of Schedule 2 or a decision under section 37(1) that interest should be charged on an overpayment of tax credit.

Section 39: Exercise of right of appeal

154.     This section sets out the framework for appeals. In particular, notice of an appeal against a decision must be given to the Board in a prescribed manner within 30 days after the date on which notice of the decision was given or, in the case of a decision to which section 23(3) (which provides that notice need not be given of certain decisions) applies, within 30 days of the date of the decision. The appeal must specify the grounds for appealing. This section provides for appeals to be heard by the General Commissioners or, if the appellant chooses, the Special Commissioners, like income tax appeals, and the relevant provisions of the Taxes Management Act 1970 are therefore applied. Regulations may modify Part 5 of that Act, as appropriate to tax credits. The Commissioners may allow the appellant to introduce new reasons for his appeal if they believe it was not wilful or unreasonable not to have advanced them before.

155.     Until the date appointed by order under section 63(1), the provision of this section are modified by section 63.

Section 40: Annual reports

156.      This section requires the Board to make an annual report to the Treasury about certain matters in relation to tax credits. The report must cover the Board's accounts insofar as they relate to tax credits, the number of awards made of child tax credit and of working tax credit, the number of enquiries conducted under section 19, the number of penalties imposed under Part 1, and the number of prosecutions and convictions for offences connected with tax credits. The Treasury must publish a copy of each report and lay a copy before each House of Parliament

Section 41: Annual review

157.     This section requires the Treasury to review, each tax year, certain monetary amounts that are to be prescribed in regulations to see whether they have retained their value in relation to prices. The Treasury must prepare and lay before each House of Parliament a report of that review, stating what each amount would have been had it retained its value against prices.

158.     The requirement applies to any monetary amount prescribed under the provisions listed in subsection (2). The income thresholds at which each tax credit will start to be withdrawn will be prescribed under section 7(1)(a). The income threshold at which the family element of the child tax credit will start to be withdrawn will be prescribed under section 13(2). Any thresholds relating to changes in income between the current year and the previous year will be prescribed under section 7(3). The amounts for the various elements for child tax credit will be prescribed under section 9, and those for working tax credit under section 11. The requirement does not apply to the childcare element of the working tax credit.

Section 42: Persons subject to immigration control

159.     This section provides for regulations to be made about the access people subject to immigration control are to have to tax credits.

Section 43: Polygamous marriages

160.     Exceptionally, those claiming tax credits may be parties to polygamous marriages. Section 39 allows appropriate modifications to tax credit rules to be made by regulations to accommodate these cases.

Section 44: Crown employment

161.     This section ensures, for the avoidance of doubt, that the provisions of Part 1 apply to persons employed by or under the Crown.

Section 45: Inalienability

162.     This section provides that the right to a tax credit cannot be assigned to any other person. This means that payments of tax credit are always directed to the person who is entitled to them and cannot be diverted, for example, to pay his or her creditors.

Section 46: Giving of notices by Board

163.     This section gives the Board flexibility to issue notices in the most appropriate manner in any given case.

Section 47: Consequential amendments

164.     This section gives effect to Schedule 3 which contains a number of amendments resulting from the introduction of child tax credit and working tax credit and the abolition of the credits and benefits specified in section 1(3).

Schedule 3: Tax credits: consequential amendments

Attachment of earnings

165.     Paragraph 1 provides that working tax credit and child tax credit are not to be considered as earnings for the purposes of the Attachment of Earnings Act 1971. Paragraph 3 has the same effect for the purposes of the Judgements Enforcement (Northern Ireland) Order 1981. Paragraph 8 has the same effect for the purposes of the Magistrates' Courts (Northern Ireland) Order 1981 and paragraph 13 has the same effect for the purposes of the Debtors (Scotland) Act 1987.

Income and Corporation Taxes Act 1988

166.     Paragraph 14 provides that working tax credit and child tax credit are not to be treated as income for the purposes of the Income Tax Acts.

Children Act 1989

167.     Paragraphs 15 to 20 provide that where local authorities provide services for children in need, they will not be able to recover the cost of such services from persons in receipt of working tax credit or child tax credit other than the family element. Paragraph 16(3) enables regulations to be made by the Treasury providing that certain persons can be treated as being in receipt of working tax credit or any element of child tax credit other than the family element for the purposes of Part 3 of the Children Act 1989. This might cover, for example, persons who would receive tax credits but for the provision of free childcare to that person under Part 3 of that Act. Paragraphs 51 to 56 make equivalent amendments to the Children (Northern Ireland) Order 1995.