Tens of thousands of middle-income families in the UK who have ‘inadvertently’ overclaimed Child Benefit face investigation by tax collectors and risk hefty fines if they don’t pay.
Parliamentarians last week gave HM Revenue & Customs (HMRC) extraordinary powers to investigate the financial records of 170,000 households it suspects wrongly claimed the benefit.
However, observers have claimed that the system is so complicated that many parents simply didn’t know they had overclaimed.
Under changes introduced in 2013, the full benefit (£21 a week for the first child and £14 a week for subsequent children) is reduced for households where one person earns more than £50,000.
The child benefit is reduced to the point where households with an income of £60,000 get nothing. But families continue to receive the benefit regardless of their income, unless they notify HMRC on a tax return and then return it.
Many households have insisted that they didn’t return it because they didn’t know they had to.
Tens of thousands of UK parents who ‘inadvertently’ overclaimed child benefit are facing an investigation by the IRS and risk huge fines if they don’t pay (stock image)
How does the child benefit system work?
Child Benefit pays £21.15 per week for the eldest or only child and £14 for all additional children.
These fees will increase by 3.1 per cent from April 2022 to £21.80 and £14.45 respectively.
Only one person can get Child Benefit for a child. But the family income of both members of the couple is taken into account.
If your or your partner’s individual income is more than £50,000, you must pay tax on Child Benefit and receive a lower amount. And once you or your partner earn £60,000, you’ll lose all your benefits through tax.
Those who fail to notify HMRC that they owe the tax could be fined up to 30 per cent on top of what they owe.
However, since a penalty review in 2018 changed what constituted a ‘reasonable excuse’ for not reporting, the number of tickets issued has decreased.
There were 46,738 penalties in 2015-16, falling to 19,329 in 2016-17 and a similar 20,281 in 2017-18, before plummeting to 4,742 in 2018-19 and just 1,217 in 2019-20.
HMRC will now go after these families since 2013 amid fears it could lose a test case on the issue that could cost it millions of pounds.
The tax collector has cut checks during the pandemic as staff redeployed into Covid-19 schemes, but is now resuming his work checking whether parents receiving Child Benefit should pay taxes.
Those who fail to tell HMRC they owe the tax could be fined up to 30 per cent on top of what they owe.
Claims compliance checks fell from a high of 125,594 in 2019-20 to just 45,553 in 2020-21, after doubling in the year before the pandemic.
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 profit for every £100 earned on this sum.
The tax collector will issue so-called “discovery assessments” to workers who he thinks should pay back the child benefit. A discovery assessment may be issued if HMRC officials find “careless or deliberate” behaviour.
In cases where an error has been caused ‘by carelessness’, HMRC has the power to trace back six years of financial records. It can investigate 20 years of financial records if families are found to have acted ‘willfully’.
The powers used by the tax collector are normally reserved for investigating the worst tax crimes.
Sean McCann, Chartered Financial Planner at NFU Mutual, told The Sun: ‘HMRC dramatically increased the number of checks they were carrying out before the pandemic when over 120,000 families were contacted in a single financial year, but as redeployed staff to deal with Covid schemes, that figure collapsed.
“Families who did not receive reminder letters last year should not assume the tax is not due.”
It added: “If you have income over £50,000 and receive a child benefit or live with a partner who does, you may need to pay it.”
HMRC is appealing a High Tax Court decision which found in favor of taxpayers.
If he loses, he will be forced to pay back £2m and could face claims from nearly 170,000 other claimants he is investigating for “over-claiming” child benefits between 2013 and 2019.
MPs last week gave HM Revenue & Customs (HMRC) powers to investigate the financial records of 170,000 households they suspect wrongly claimed the benefit.
Lawyers representing 400 plaintiffs say it is illegal to issue discovery evaluations for employees paid through PAYE.
James Austen, solicitor for Collyer Bristow, who is bringing the legal case against HMRC, said: “There was no tax evasion in this case and the taxpayers penalized by this retrospective move were generally unaware of their responsibilities.”
An HMRC spokesperson said: “The move will ensure that those responsible for these tax charges are treated fairly and consistently, and that people who fail to notify and report their responsibility for these charges cannot gain an unfair advantage over the majority who follow. the rules.
“The measure does not create any new responsibilities or obligations for taxpayers, and confirms the long-standing and widely accepted legal position prior to the recent court decisions.”
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