HMRC to refund child benefit fines for higher earners
Thousands of parents stand to be refunded penalty charges following changes to system
Thousands of higher earning parents who were fined by HM Revenue & Customs following changes to the child benefit system could receive a refund, following a high-profile climbdown by the UK tax authority.
HM Revenue & Customs said it was reviewing cases from April 2013 to March 2016, and would automatically issue penalty refunds if it found claimants had “a reasonable excuse” for not meeting their tax obligation. Typically, the penalty charges were £100.
Since 2013, couples where one partner earns more than £60,000 have no longer been entitled to claim child benefit, which is currently worth up to £1,076 per child, per year. The benefit starts to be tapered away for those who earn more than £50,000 and is reclaimed via the tax system.
This means about 1m parents and legal guardians earning more than £50,000 have to complete a tax return to pay back what they owe, or officially opt out of receiving the benefit.
“The Revenue did not communicate the charge properly at the time it was introduced in 2013. As a result, many parents found they not only had to pay back thousands of pounds in tax through self-assessment returns they didn’t know they had to produce, they were also whacked with late payment fines,” said Becky O’Connor, personal finance specialist at Royal London.
“It’s right and proper that HMRC has changed its mind and will be refunding unfair penalty fines. These were paid by parents who were unknowingly dragged into a liability for a charge they were never properly told about.”
In a statement on Thursday, HMRC said it was “proactively reviewing these cases” following feedback from customers. It said that its definition of a “reasonable excuse” would be based on an objective assessment of individual circumstances, but accepted that “the higher earner in a household who pays the charge may not be the same person claiming child benefit on behalf of the household”.
An HMRC spokesperson added: “Customers do not need to ask for a penalty refund or contact HMRC. We will issue the refunds, where due, over the next six months. If we need more information from people, we will contact them.”
A further consequence of the 2013 legislation is that stay-at-home parents with higher earning partners may have lost out on state pension credits.
A recent report from Royal London revealed that tens of thousands of parents from high-income families had chosen not to register for child benefit after hearing about the tax charge. However, so long as the stay-at-home parent registers and then officially opts out of receiving the payments, they can still build up their state pension entitlement.
In 2017, the number of people claiming child benefit payments fell to its lowest level since records began, with just over half a million families opting out of receiving child benefit altogether.