Notional tax credits and sentencing for benefit fraud offences

Notional entitlement to tax credits and benefits (i.e. what someone was entitled to but no claim was made), cannot be offset against an overpayment (Larusai v Sec of State for W & P). However, it is relevant in mitigation for sentencing in benefit fraud cases because it shows the actual loss to public funds

For example, defendant pleads guilty to dishonestly not declaring she was living together as husband and wife and is overpaid £25,000 IS (which is at a level where custody becomes much more likely). However because of partner’s modestly paid work and spells of unemployment there was notional entitlement to say £6,000 WTC and £10,000 CTC and £2,000 JSA. Actual loss to public funds was therefore £7,000 which would have a significant bearing on sentence and very likely result in a non-custodial sentence unless aggravating features were present.

The amounts involved can be very significant and I have even had some cases where the amount of notional entitlement exceeded the actual overpayment.

The DWP have never liked the concept - seems to be a mixture of bureaucratic, resource and political reasons and of course it raises questions about the purpose of some prosecutions and undermines the much quoted headline fraud figures.

Following the Court of Appeal’s decision in R v Parmer (http://www.bailii.org/ew/cases/EWCA/Crim/2006/979.html), courts can take notional entitlement into account when sentencing.

However, in practice it seems to be often overlooked.

I have received the attached judgement by Gilbart J in Manchester Crown Court which has been circulated quite widely at his request.

Essentially, apart from publicly embarrassing the DWP/CPS for not attending and following Directions (which of course we see frequently before Tribunals!), he holds that the burden of obtaining a notional tax credit calculation for mitigation lies with the Crown.

However, I think it is unlikely that the Crown will alert courts to the possibility of notional entitlement to benefits (Jobseekers Allowance being a common one in living together cases) and of course there can be many situations where there is no notional tax credit entitlement – for example, non-working people without children or those not on low incomes. Similarly, cases involving undeclared cash-in-hand payments or other work in the informal economy are problematic when trying to assess tax credits.

A small minority of local authorities take the fundamentally wrong and unlawful view that notional tax credits must be included in underlying entitlement to HB and CTB.

It also remains to be seen how HMRC/DWP/CPS will resource the work. If these calculations are to be done in each case, they will need a team of staff dedicated to doing the work.

As advisers know, there is a real problem with the error rate in actual benefit overpayments and in busy courts, there can be a tendency to focus on notional tax credits (which do not reduce the amount of overpaid benefit) rather than the accuracy of the actual alleged benefit overpayments. I have had several cases where the correct actual overpayment was nil which may of course mean that no offence in relation to a change of circumstances has been committed or is significant in other respects.

So even though as a Crown Court judgement, it’s not binding, it’s a good development, particularly in constitutional terms, but not without its drawbacks, especially in the current financial climate.