Question 1

I am writing to advise you that following a search of our paper and electronic records, I have established that the information you requested is not held by the NHS Business Services Authority. A customer applies to HMRC for tax credits and they are notified by the HMRC of the outcome of their claim. HMRC then send the NHSBSA details of the customer to enable us to issue a certificate if qualifying criteria has been met. 

Question 2

If no entitlement is found at the time of the prescription a penalty charge notice would be issued.

Question 3
Please see the following, taken from the NHSBSA website. 
We're responsible for checking claims for free NHS prescriptions and NHS dental treatment, and recover charges from patients who incorrectly claim they do not have to pay.
NHS Penalty Charge Notices are issued in accordance with the National Health Service (Penalty Charge) Regulations 1999.
More information can be found at:
https://www.nhsbsa.nhs.uk/penalty-charges-dont-get-caught-out/what-are-nhs-penalty-charges 
The information supplied to you continues to be protected by the Copyright, Designs and Patents Act 1988 and is subject to NHSBSA copyright. This information is licenced under the terms of the Open Government Licence detailed at:
http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/ 

Should you wish to re-use the information you must include the following statement:
“NHS Prescription Services, NHSBSA Copyright 2018” This information is licenced under the terms of the Open Government Licence:

http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/ 

Failure to do so is a breach of the terms of the licence.

Information you receive which is not subject to NHSBSA Copyright continues to be protected by the copyright of the person, or organisation, from which the information originated.  Please obtain their permission before reproducing any third party (non NHSBSA Copyright) information.