Tens of thousands of middle-income UK families who have ‘unwittingly’ overclaimed child benefit face being investigated by the taxman – and risk huge fines if they fail to repay.
MPs last week gave HM Revenue & Customs (HMRC) extraordinary powers to probe the financial records of 170,000 households who it suspects wrongly claimed the benefit.
However, many observers believe that the system has become so complex that some parents did not realize how much they claimed.
Under changes introduced in 2013, the full benefit – £21 a week for a first child and £14 a week for further children – is reduced for households where one earner makes more than £50,000.
The child benefit tapers until the point where households with an earner on £60,000 get nothing. Families continue to receive the child benefit, regardless of how much they earn, until HMRC informs them in a return. Then, they must repay it.
Numerous households claim that they didn’t repay the loan because they weren’t aware that they needed to.
Tens of thousands of UK parents who ‘unwittingly’ overclaimed child benefit face being investigated by the taxman – and risk huge fines if they fail to repay (stock image)
HMRC has decided to follow these families all the way back to 2013. This is in response to fears that HMRC could lose its test case, which could result in it spending millions.
During the pandemic the taxes were reduced while employees were redeployed under Covid-19. Now, however, it is resuming its inspection of whether Child Benefit recipients should pay tax.
HMRC could fine those who do not tell HMRC they owe tax, up to 30% on top of the amount they already owe.
After having doubled the previous year, compliance checks for claims dropped from a peak of 125594 in 2019-20 down to only 45,553 by 2020-21.
Parents earning more than £50,000 must pay the High Income Child Benefit Charge if they get the benefit. The tax charge is paid at a rate of 1 per cent of the benefit for every £100 earned over this sum.
The taxman will issue so-called ‘discovery assessments’ to workers it believes should pay back child benefit. A discovery assessment can be issued if HMRC officials find ‘careless or deliberate’ behaviour.
In cases where an error has been caused ‘carelessly’, HMRC has the power to trawl through six years of financial records. It can investigate 20 years of financial records if families are found to have acted ‘deliberately’.
The taxman’s powers are typically reserved for investigating the most severe tax crimes.
Sean McCann, chartered financial planner at NFU Mutual, told The Sun: ‘HMRC dramatically increased the number of checks they made before the pandemic when over 120,000 families were contacted in a single tax year, but as staff were redeployed to deal with Covid schemes, that figure collapsed.
‘Families who didn’t receive reminder letters last year shouldn’t assume the tax isn’t owed.’
He added: ‘If you have income over £50,000 and receive child benefit or live with a partner who does, you may need to repay it.’
HMRC has appealed a decision of the Upper Tax Tribunal that sided with taxpayers.
If it loses it will be forced to pay back £2million and could face claims from nearly 170,000 other claimants it is investigating for ‘overclaiming’ child benefit between 2013 and 2019.
MPs last week gave HM Revenue & Customs (HMRC) powers to probe the financial records of 170,000 households who it suspects wrongly claimed the benefit
Representatives of 400 claimants argue that the issuance discovery assessments to employees who have been paid via PAYE for their services is illegal.
James Austen, a barrister at Collyer Bristow, which is bringing the legal case against HMRC, said: ‘In this case there was no tax avoidance and the taxpayers being penalised by this retrospective move were typically oblivious of their responsibilities.’
An HMRC spokesman said: ‘The measure will ensure those liable for these tax charges are treated in a fair and consistent way, and that individuals who do not notify and report their liability to these charges cannot gain an unfair advantage over the majority who follow the rules.
‘The measure does not create new liabilities or obligations for taxpayers, and confirms the longstanding and widely accepted legal position in place before recent tribunal decisions.’