HMRC to issue refunds of child benefit tax fines

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HM Revenue and Customs has announced it will start refunding fines issued to parents who didn’t realise they needed to pay tax on their child benefit. Who’s affected?

What’s the problem?

The problem stems from January 2013, when the government introduced a tax charge for higher earners receiving child benefit. It was called the High Income Child Benefit Charge. To describe the rules as complicated is to be kind!

Couples who received child benefit, where one partner earned between £50,000 and £60,000, either had to pay extra tax or opt out of getting child benefit. If both parents earned more than £50,000, it was the higher earner who had to register for the tax charge and pay it.

Many parents didn’t realise that they had to tell HMRC that they were over the £50,000 threshold and therefore would need to be sent a self-assessment tax return. HM Revenue and Customs started issuing fines to those parents who didn’t tell them. In HMRC terms, the penalty was for a ‘failure to notify’.

Over the last year or so, there’s been growing criticism of this heavy-handed approach by HM Revenue and Customs.

How many parents are affected?

It’s hard to know exactly and HMRC isn’t confirming a figure. The penalty I’m talking about here is for failing to contact HMRC and tell them that you might need to pay extra tax, not for failing to send in a tax return. So it’s hard to know how many people have paid penalties that they may now get refunded.

How much is the penalty?

The ‘failure to notify’ penalty is a percentage of the tax you owe. If you contact HMRC to tell them that you may owe extra tax, the penalty is between 0% and 30% of the tax you owe. This depends on when you get in touch with them. For example, after 12 months, it’s between 10% and 30%. If HMRC has to contact you, it’s between 0% and 30% of the tax you owe. But after 12 months the minimum penalty will be 20%.

What is HM Revenue and Customs doing?

This week it announced that it would be reviewing cases where a penalty was issued to parents who didn’t register to pay the tax charge. HMRC is looking at cases where parents paid this penalty for the tax years 2013 to 2014, 2014 to 2015, and/or 2015 to 2016 for not registering for the High Income Child Benefit Charge.

HMRC says it will issue automatic refunds of the penalties if it thinks parents had what’s called a ‘reasonable excuse’. Normally you have to apply to have a penalty waived if you didn’t fill in a self-assessment tax return. The fact that HMRC is going to refund the penalty automatically is significant.

Who will get a refund?

In the press release, HMRC says it will be giving a refund to a specific group of parents. This group includes families who made a claim for Child Benefit before the High Income Child Benefit Charge was introduced, and where one partner’s income subsequently increased to over £50,000 in or after the 2013 to 2014 tax year. So, this means, that if you received child benefit before January 2013 AND you or your partner’s income reached more than £50,000 after that date, you may get a refund of your tax penalty.

However, HMRC goes onto say that the review will not include anyone who received a letter from HMRC about High Income Child Benefit Charge or anyone claimed Child Benefit after the charge was introduced in January 2013.

What do I have to do?

You don’t have to do anything at the moment. The review of tax fines will take six months. So if you haven’t heard anything after six months or so, and you think you are due a refund, contact the Child Benefit helpline.

Alongside this, HMRC is already writing to customers who might be liable to High Income Child Benefit Charge in 2016 to 2017 and 2017 to 2018, to help them meet their tax obligations in time to avoid paying a penalty.

Photo by NIKOLAY OSMACHKO from Pexels

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Useful links:
There’s useful information on the Gov.uk website about the child benefit changes.

High income child benefit charge

Estimate your child benefit tax charge

You can register not to receive child benefit by filling in a child benefit request form. There’s background information about Stopping child benefit on the Gov.uk website.

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