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Parents set for child benefit fine refunds as HMRC makes shock u-turn

Paloma Kubiak
Written By:
Paloma Kubiak

Thousands of parents could receive refunds of child benefit tax penalties applied between 2013 and 2016, HMRC has announced.

The tax authority confirmed it will be reviewing ‘failure to notify’ penalties issued to parents who didn’t register for the High Income Child Benefit Charge.

It said it will issue penalty refunds if it finds a parent had a “reasonable excuse” for not meeting the tax obligation.

Child benefit changes

In 2010, the coalition government announced it would remove child benefit from households with a higher rate taxpayer.

Introduced in 2013, this meant for couples where one partner earns between £50,000 and £60,000, a progressively rising tax charge is incurred. At incomes over £60,000, the tax charge wipes out the value of the child benefit entirely.

However, tens of thousands of parents who received the child benefit without realising they needed to pay the High Income Child Benefit Charge were slapped with fines by HMRC.

Earlier this month it was revealed HMRC had issued thousands of letters to families demanding money owed from previous tax years.

But today’s announcement comes as a welcome surprise for parents who genuinely may not have known they needed to pay a tax charge. This is especially the case for families who don’t tend to submit tax returns.

‘Reasonable excuse’

HMRC explained that a “reasonable excuse” is something that stopped someone from meeting a tax obligation which they took appropriate care to meet. It added that decisions on what constitutes a reasonable excuse are based on an “objective assessment of individual circumstances”.

It will review cases where families made a claim for child benefit before the High Income Child Benefit Charge was introduced, and where one partner’s income increased to over £50,000 in or after the 2013/14 tax year.

But the review won’t include anyone who received communications from HMRC about High Income Child Benefit Charge or claimed child benefit after the charge was introduced in 2013.

Customers don’t need to ask for a penalty refund or contact HMRC as it will issue refunds over the next six months.

The tax body added that it’s also writing to customers who might be liable to High Income Child Benefit Charge in 2016/17 and 2017/18, to “help them meet their tax obligations in time to avoid paying a penalty”.

‘Right and proper’

Becky O’Connor, personal finance specialist at Royal London, said: “The Revenue didn’t 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.

“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.”

Related: See YourMoney.com’s Why high earning households should apply for child benefit for more information.