Clause 31: Failure by employers to make correct payments

124.     This clause sets out the penalties that may be imposed on employers if they fail to comply with their obligations under regulation made under clause 24. Where the employer refuses or repeatedly fails to pay tax credits to employers in accordance with regulations and the Board has therefore to make the payments direct, the employer is liable to a penalty of up to £3,000. Similarly, a penalty of up to £3,000 may be imposed where 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.

Clause 32: Supplementary

125.     This clause gives effect to Schedule 2, which contains various supplementary provisions relating to penalties.

Schedule 2: Supplementary

126.     This schedule deals with the procedural and supplemental provisions relating to penalties.

127.     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 clause 29, 30(2)(b) or (3) and (3) and 31 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.

128.     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 in the High Court or the Court of Session against the Commissioners' decision.

129.     Paragraph 3 concerns penalty proceedings before the Commissioners. It provides that the Board may take penalty proceedings before the Commissioners for a penalty under clause 30(2)(a). The proceedings must be initiated in writing to the Commissioners.

130.     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.

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

132.     Paragraph 6 sets out the time limits for imposing penalties under clauses 29, 30 and 31. It provides that, for a penalty under clause 29, a determination of the penalty must be made, or proceedings for it started, within one year of the latest of:

• the expiry of the time for starting an enquiry into the award under clause 18;

• the date on which an enquiry into the award under clause 18 is completed; or

• the date on which a decision on discovery is made under clause 19.

133.     The time limit for penalties under clause 30 is one year after the latest of:

• the expiry of the time for starting an enquiry into the award; or

• the date on which an enquiry into the award is completed.

134.     For penalties under clauses 29 or 30 in relation to the obligations on employers under clause 24, and penalties under clause 31, the penalty determination must be made, or proceedings started, within 6 years after the penalty was incurred or began to be incurred.

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

Clause 33: Offence of fraud

136.     This clause establishes that knowingly committing fraudulent activity in connection with obtaining payments of tax credit is a criminal offence. The offence is punishable by (a) six months imprisonment and/or the statutory maximum fine on summary conviction, or (b) seven years imprisonment and/or a fine on conviction on indictment.

Clause 34: Powers in relation to documents

137.     Clause 34 gives the Board powers to obtain evidence in cases of suspected tax credit fraud. It does this by reference to powers already conferred on the Board in relation to suspected serious tax fraud by sections 20BA and 20C of and Schedule 1AA to the Taxes Management Act 1970.

138.     Section 20BA 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 that

• 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.

139.     Clause 34 makes this power available in cases of suspected tax credit fraud. Section 20BB, which makes it an offence to falsify documents required by order under section 20BA, and Schedule 1AA, which makes supplemental provision, are also applied.

140.     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. Clause 34 makes this power available in cases where serious fraud in connection with tax credits is suspected. Section 20CC, which make provision about procedural issues, is also applied.

Clause 35: Interest

141.     Clause 35 provides that interest may be charged on any overpayment of tax credits which arises from the fraud or neglect of a person to whom a claim relates (subsection (2)). The interest is chargeable from 30 days after the end of the period allowed to confirm details of income in response to a notice under clause 17(4).

142.     The clause also 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 (subsection (4)).

Clause 36: Appeals

143.     Clause 36 provides for a right of appeal against a decision made by the Board under the provisions of this Part of the Bill, the determination of a penalty under paragraph 1 of Schedule 2 or a decision under clause 35(1) that interest should be charged on an overpayment of tax credit.

Clause 37: Exercise of right of appeal

144.     This clause 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 the notice of decision was given. The appeal must specify the grounds for appealing. Appeals will be heard by the 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. An appeal is to be made to the General Commissioners or, if the appellant chooses, to the Special Commissioners. 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.

Clause 38: Persons subject to immigration control

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

Clause 39: Polygamous marriages

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

Clause 40: Crown employment

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

Clause 41: Inalienability

148.     This clause 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.

Clause 42: Giving of notices by Board

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

Clause 43: Consequential amendments

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

Schedule 3: Tax credits: consequential amendments

Attachment of earnings

151.     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 4 has the same effect for the purposes of the Magistrates' Courts (Northern Ireland) Order 1981 and paragraph 9 has the same effect for the purposes of the Debtors (Scotland) Act 1987.

Income and Corporation Taxes Act 1988

152.     Paragraph 10 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

153.     Paragraphs 11 to 16 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 or child tax credit other than the family element or working tax credit. Paragraph 12(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, 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 41 to 45 make equivalent amendments to the Children (Northern Ireland) Order 1995.

Social Security Contributions and Benefits Act 1992

154.     Paragraph 21 ensures that the existing rules linking entitlement to incapacity benefit across an intervening period of receipt of disabled person's tax credit will continue to have the same application for people entitled to the disability element of working tax credit who receive working tax credit or any element of the child tax credit other than the family element.

155.     Paragraph 24 has the same effect as paragraph 21 for the purposes of long-term incapacity benefit.

156.     Paragraph 25 provides for working tax credit or any element of child tax credit other than the family element to be included in the calculation of the earnings factor used to calculate additional pension under sections 44 or 45 of the Social Security Contributions and Benefits Act 1992.

157.     Paragraph 30 to 34 make equivalent amendments to the Social Security Contributions and Benefits (Northern Ireland) Act 1992

PART 2: CHILD BENEFIT AND GUARDIAN'S ALLOWANCE

Clause 45: Functions transferred to Treasury

158.     Clause 45 transfers to the Treasury responsibility for policy relating to child benefit and guardian's allowance, for setting the level of those benefits, and for the rules concerning entitlement. The functions transferred consist mainly of the exercise of powers to make subordinate legislation in relation to those benefits. This clause covers the transfer of policy relating to those benefits within both Great Britain and Northern Ireland.

Clause 46: Functions transferred to Board

159.     Clause 46 transfers to the Board the functions relating to child benefit and guardian's allowance which are not transferred to the Treasury by clause 45. It transfers to the Board the day-to-day operational functions currently discharged by the Child Benefit Centre on behalf of the Secretary of State, and by the Child Benefit Office in Northern Ireland on behalf of the DSD.

160.     Existing social security legislation contains extensive powers to make regulations. To the extent that these powers relate to child benefit or guardian's allowance, they are specifically transferred under clauses 45 and 46 to either the Treasury or the Board.

Clause 47: Consequential amendments

161.     Clause 47 introduces Schedule 4, which makes amendments to child benefit and guardian's allowance legislation resulting from the transfer of functions or of the introduction of new tax credits.

Schedule 4: Transfer of functions: consequential amendments

Social Security Administration Act 1992

162.     Paragraph 2 removes the power to deduct overpaid child benefit or guardian's allowance from other benefits. At present, the power to recover benefits from child benefit or guardian's allowance is limited in effect, as it requires the consent of the claimant. As a result of the transfer to the Board, the link between child benefit and other social security benefits will be severed. In future, overpaid child benefit or guardian's allowance will only be recoverable directly from the claimant or from future payments.

163.     Paragraph 3 relates to the responsibility for setting rates in child benefit and guardian's allowance. For those benefits which remain the responsibility of the Secretary of State, any power to change the rates of those benefits will remain subject to the consent of the Treasury.

Social Security Administration (Northern Ireland) Act 1992

164.     Paragraph 8 mirrors the amendment made in paragraph 2 by removing the power to deduct overpaid child benefit or guardian's allowance from other social security benefits payable under Northern Ireland legislation.

165.     Paragraph 9 ensures that where an order is made in Great Britain uprating child benefit or guardian's allowance, or where a mistake in the calculation of the rate of these benefits is rectified by the Treasury under its power to do so by regulations, the effect of the change is mirrored in Northern Ireland.

Social Security Act 1998

166.     Paragraph 15 provides for references to decisions by the Secretary of State to be construed, in relation to child benefit and guardian's allowance, as references to a decision of the Board, or of an officer of the Board.

Social Security (Northern Ireland) Order 1998

167.     Paragraph 19 provides for references to decisions by the Department in Northern Ireland to be construed, in relation to child benefit and guardian's allowance, as references to a decision of the Board, or of an officer of the Board.

Immigration and Asylum Act 1999

168.     Paragraph 21 enables the Treasury to make regulations providing that persons subject to immigration control are entitled to child benefit in prescribed circumstances. Paragraph 22 provides for the Treasury to make regulations allowing the backdating of entitlement to child benefit and guardian's allowance in certain circumstances when people who were subject to immigration control acquire refugee status.

Clause 48: Transfer of property, rights and liabilities

169.     The Child Benefit Centre, and its Northern Ireland equivalent, receive goods and services under a wide range of contracts. Those contracts relating wholly to functions transferred to the Treasury or the Board will, from the date of transfer, become contracts with those Departments. However, the Child Benefit Centre and its Northern Ireland equivalent also receive goods and services under contracts that provide for the supply of goods and services to other parts of DWP or, in Northern Ireland, DSD. In those cases, the right to enforce those contracts and liabilities resulting from them is transferred but only to the extent that they relate to the functions transferred.

170.     Clause 48 makes provision for the transfer of any property, rights or liabilities associated wholly with the functions relating to the operation of child benefit or guardian's allowance to be transferred to the Treasury or the Board, as appropriate. It enables the Treasury to issue a certificate, where required, as evidence that transfer has taken place (subsection (3)) and ensures that all rights and liabilities are to be transferred, even where the contract itself states that they should not be (subsection (4)).

171.     Subsections (5) and (6) deal with those contracts which relate partly to functions transferred to the Board or Treasury and partly to functions retained by the Secretary of State or the original Departments. They provide for the transfer of rights and liabilities under those contracts, but only so far as they relate to child benefit and guardian's allowance and the functions being transferred.

172.     Subsection (7) also allows the transfer by Order in Council to the Home Civil Service of staff currently employed in administering child benefit and guardian's allowance in Northern Ireland. These staff are currently members of the Northern Ireland Civil Service.

Clause 49: General functions of Board

173.     Clause 49 brings child benefit and guardian's allowance under the care and management of the Board. Child benefit and guardian's allowance are also brought within the definition of 'inland revenue' as set out in the Inland Revenue Regulation Act 1890.

174.     This clause also provides for the Board to appoint staff to operate, pay and account for child benefit and guardian's allowance and sets out the accounting requirements. The Board will be required separately to identify the amounts of child benefit and of guardian's allowance paid out in any period, the costs of operating each system and amounts received in respect of those benefits.

175.     In addition, this clause makes consequential amendments to the provisions in the Taxes Management Act 1970 that require members of Inland Revenue staff and the General and Special Commissioners to make a declaration of secrecy.

Clause 50: Transitional provisions

176.     The transfer of functions will not be effective until a date appointed by a commencement order. Until that date, the Secretary of State will continue to carry out all functions in relation to child benefit and guardian's allowance.

177.     The effect of subsections (4) to (9) is to ensure that anything done by the Secretary of State, or the equivalent Department in Northern Ireland, in the exercise of any of those functions before transfer will continue to have effect after the date of transfer, as if they had been actions of the Treasury or the Board. It follows that any decisions made, appeals against such decisions, or actions being taken by or against the Secretary of State or Department become the responsibility of the Treasury or the Board from the date of transfer, depending on the function to which they relate. The Treasury or the Board would be substituted for the Secretary of State or Department in any contracts, legal proceedings or other instruments.

178.     Before the date of transfer, but after this Bill has received Royal Assent, the Treasury or the Board will need to exercise certain of the functions to be transferred to them, to enable them to take over responsibility from the date of transfer. To enable a smooth transfer, regulations need to be in force to provide the Board with the power to carry out those functions from that date. Subsections (1) and (2) therefore confer a power on the Treasury and the Board to make regulations during the period after Royal Assent but prior to commencement of the transfer, to enable them to prepare for transfer. Such regulations cannot come into force, however, until the date of transfer.

179.     This clause also enables an order made before the transfer of functions facilitating electronic communications in respect of child benefit or guardian's allowance to stay in force after transfer.

Clause 51: Continuing entitlement after death of child

180.     In the current child benefit system, entitlement ceases immediately a child dies. In addition, if a child dies within days or hours of its birth, the family may never become entitled to child benefit for that child. Under current legislation, the child must be alive before, and into, the first day of the next complete benefit week (Monday) for the family to become entitled.

181.     Clause 51 extends entitlement to child benefit after the death of the child in question for a period to be specified in secondary legislation. The clause also provides for a person to receive child benefit during that extension period in cases where they would normally have been excluded from entitlement because the child did not survive until the Monday following its birth.

182.     Clause 51 also provides that the surviving partner of a person entitled to child benefit for a child who has died can claim child benefit for the extension period if:

• the child benefit claimant dies as well as the child; and

• the claimant and the surviving partner were a married or unmarried couple who were living together at the time of the claimant's death.

183.     Entitlement to guardian's allowance is extended in the same way as entitlement to child benefit.

Clause 52: Presence in United Kingdom

184.     Clause 52 introduces a change to the child benefit rules to bring them closer into line with the rules proposed for the child tax credit. It retains the requirement for both the child and the claimant to be in Great Britain or Northern Ireland, as appropriate, for any week of claim to child benefit, subject to prescribed exceptions enabling entitlement to continue during periods of temporary absence. But it removes the requirement for both the child and the claimant to have been present for 182 days before entitlement begins. Instead, the clause provides a power to set out in secondary legislation when a person may be treated as being, or not being, in Great Britain or Northern Ireland for child benefit purposes.

Clause 53: Abolition of exclusion of tax exempt persons

185.     This clause removes the provision that anyone who has income exempt from UK income tax (or whose partner has such income) is excluded from child benefit entitlement. Child benefit originated in an earlier income tax relief and retained this restriction on claims from that relief. One of its effects is to exclude some people from child benefit entitlement who do pay UK tax. There will be no such restriction on claims to child tax credit and this change brings child benefit into line.

PART 3: SUPPLEMENTARY

Clause 54: Administrative arrangements for claims

186.     Jobcentre Plus staff, who will administer benefits on behalf of the DWP, and other equivalents in Northern Ireland on behalf of DSD, may also carry out functions that relate to tax credits, child benefit and guardian's allowance, such as assisting people to make a claim. Clause 54 provides a power to make regulations to allow for these administrative arrangements.

Clause 55: Use and disclosure of information

187.     Clause 55 introduces Schedule 5 which is concerned with providing powers to the Board to:

• pool information it holds for any of its functions;

• disclose tax credits, child benefit and guardian's allowance information in certain circumstances; and

• obtain information from other government departments for the purpose of carrying out its functions under this Bill.

Schedule 5 - Use and disclosure of information

188.     Paragraph 1 allows the Board, or any person providing services to it, to use information it holds for the purposes of its functions relating to tax credits, child benefit and guardian's allowance for any of those functions. Information may also be supplied to any person providing services to the Board, for the purposes of, or in connection with, those functions.

189.     Paragraph 2 allows the Board to pool information it holds for the purposes of any of its functions. Information held for the purposes of, or relating to, tax credits, child benefit, guardian's allowance, tax, National Insurance contributions, statutory maternity pay, statutory sick pay, or any other function of the Board may be used for any other of those functions. Information may also be supplied to and used by anyone providing services to the Board, for the purposes of the Board's functions or in connection with the services provided.

190.     Paragraph 3 allows the DWP or the appropriate Northern Ireland Department to use the information they hold in relation to social security benefits (including child benefit or guardian's allowance) or tax credits to exercise certain administrative functions in relation to tax credits, child benefit or guardian's allowance given to them by regulations under this Bill or social security legislation.

191.     Paragraph 4 enables the Board to provide information relating to child benefit, guardian's allowance or tax credits to the DWP, or the relevant Northern Ireland Department, to enable them to carry out their statutory functions in respect of social security, child support and certain authorised functions relating to evaluation and statistical studies. Such information may also be supplied to the Ministry of Defence in relation to war pensions, as defined in sub-paragraph (5).

192.     Paragraph 4(3) enables an officer authorised by the Secretary of State or the relevant Northern Ireland Department specifically for this purpose to require tax credits, child benefit and guardian's allowance information to be provided to the Secretary of State or Northern Ireland Department for social security or child support purposes.

193.     Paragraph 5 allows the Board to provide tax credits, child benefit and guardian's allowance information to the Secretary of State or the Department of Employment and Learning in Northern Ireland for certain functions related to employment and training which will be set out in regulations.

194.     Current social security legislation imposes a criminal sanction on any member of staff in DWP or its Northern Ireland equivalent if any information held by it is disclosed to any unauthorised third party. This restriction on disclosure of information is very similar to the restrictions placed on the Board and its officers so, as in the Tax Credit Act 1999, no further restriction on onward disclosure of information is necessary.

195.     Paragraph 6 allows information held by the Secretary of State or the appropriate Northern Ireland Departments in connection with social security, child support, war pensions, employment and training to be provided to the Board. The Board may require information held in connection with child support or social security to be provided.

196.     Paragraphs 7 and 8 allow the Board to provide tax credits, child benefit and guardian's allowance information to authorities administering housing benefit and council tax benefit. The authorities may not pass on information they have received except to someone who could have received it direct from the Board anyway or in connection with certain civil and criminal proceedings. The Board may require authorities administering housing benefit or council tax benefit to supply to them information relevant to those benefits' administration, for tax credits, child benefit and guardian's allowance purposes.

197.     Paragraph 9 allows the Board to provide tax credits, child benefit and guardian's allowance information to the Department of Health, and the respective departments in the devolved administrations, for certain purposes related to health, which will be set out in regulations. Sub-paragraph (3) provides that information supplied under this paragraph may not be passed on to anyone else, except to someone who could have received it direct from the Board or for use in civil or criminal proceedings, and then only with the consent of the Board.

198.     Sub-paragraph (4) makes it a criminal offence to disclose information which has been supplied under this paragraph, unless sub-paragraph (3) applies, the disclosure was required by a court order, the person to whom the information relates gave consent or the information had been anonymised.

199.     Paragraph 10 allows the Board to provide child benefit and guardian's allowance information to civil servants and others to enable them to provide services covered by section 114(1) of the Learning and Skills Act 2000. Those services relate to encouraging, enabling or supporting participation in education or training. Sub-paragraph (3) provides that information supplied under this paragraph may not be passed on to anyone else, except to someone who could have received it direct from the Board or for use in civil or criminal proceedings, and then only with the consent of the Board.

200.     Sub-paragraph (4) makes it a criminal offence to disclose information which has been supplied under this paragraph, unless sub-paragraph (3) applies, the disclosure was required by a court order, the person to whom the information relates gave consent or the information had been anonymised.

201.     Paragraph 11 extends the offence under section 182 of the Finance Act 1989 (of disclosing information held by the Board or provided to the tax Commissioners other than for authorised purposes) to cover information obtained in carrying out the Board's functions in relation to tax credits, child benefit and guardian's allowance.

202.     Paragraphs 12 and 13 provide for consequential amendments to the Social Security Administration Acts and the Finance Act 1997 to reflect the repeal of exchange of information powers under the Tax Credits Act 1999 and the creation of replacement powers in this Bill.