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HMRC issues refunds for child benefit fines

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HMRC has cancelled penalties imposed on 6000 parents who had failed to notify HMRC of their liability for the High Income Child Benefit Charge (HICBC).  

Parents where one party has an individual income of over £50,000 can opt not to receive child benefit, but miss out on National Insurance credits that count towards the State Pension. The alternative is to pay the HICBC at the end of the year. However, parents need to notify HMRC that they are liable and there are fines for not doing so.

However, HMRC recently review 35,000 cases, and found 6000 parents had had fines imposed incorrectly. 4885 of these families had already paid the fine and will have it refunded, and the rest will have it written off.  The average refund is £370 per family and HMRC says that all customers entitled to a refund will now have received one.

Refunds were issued to those families who claimed Child Benefit before the charge was introduced and then one partner’s income increased to more than the £50,000 threshold for the charge, or where the liability occurred between 2013 and 2016 and the parent claiming child benefit had formed a new partnership.

Becky O’Connor, personal finance specialist at Royal London, said: “The bulk refund of penalty charges is an unprecedented move by HMRC and was the right thing to do. It is also an attempt to draw a line under complaints. However there are many more law-abiding parents who did not realise that they should have paid the charge and who have not had a refund. The way the charge was introduced was unfair and confusing and these refunds do not go far enough.”

Jon Greer, head of retirement policy at Quilter, added: “The introduction of changes to benefits and taxes inevitably leads to complication and confusion. It’s right that HMRC take stock after the fact and the £1.8 million in refunds to families is welcome.

“However, the challenges around this complex system aren’t going anywhere. Claiming child benefit counts as a National Insurance credit, even when the benefit is wiped out by tax charges. If a mother is not working and does not claim child benefit she will lose rights under the state pension at a rate of £231 a year for every uncredited year.

“At the moment high earners who don’t think child benefit is for them need to make sure they always complete the child benefit: claim form (CH2) to retain NI credits. That seems counterintuitive and is probably the last thing on their mind when dealing with a newborn.”

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