HM Revenue & Customs ("HMRC") will be issuing thousands of pounds of refunds to taxpayers who unknowingly failed to notify HMRC that they were liable to the Child Benefit charge, and as a result, received a penalty says Nimesh Shah, a partner in Blick Rothenberg's private client team.
Nimesh said, 'HMRC will be reviewing cases going back to 2013 and will issue refunds where they find the individual had 'reasonable excuse' for not notifying HMRC. This is good news for those taxpayers who were not aware of the rules and received a penalty.'
The "High Income Child Benefit" charge was introduced by the coalition Government and affects individuals who have income over £50,000. For every £100 of extra income over £50,000, you repay 1% of the Child Benefit payments, until you reach £60,000 when the Child Benefit payments are completely clawed back.
Nimesh added, 'HMRC says that they will be looking at cases where the penalties that were issued at the time were not appropriate – this is likely to be where the individual did not receive any relevant communication from HMRC that they could be affected by the rule change.'
The High Income Child Benefit charge came into effect part way through the 2012/13 tax year, from 7 January 2013, and many were unaware of it. Affected individuals should have notified HMRC by 5 October 2013 that they needed to pay the charge and complete a tax return by 31 January 2014, but thousands didn't, simply because they did not know. As a result, HMRC issued penalties and demands.
Nimesh said, 'HMRC say that "customers do not need to ask for a penalty refund or contact HMRC". However, it would be sensible for those who believe they were wrongly issued penalties to pro-actively follow-up with HMRC to ask if they will receive a refund.
'Whilst it is encouraging that HMRC is acknowledging its errors from the past, it does not take away from the fact that the introduction of the Child Benefit charge was badly executed and managed at the time.'
He added, 'I firmly remain of the view that the claw back of Child Benefit should not have been through the tax system, which is littered with anomalies. A major issue is that the personal tax system is viciously complicated and individuals are confused. The fact that HMRC are now reversing penalties is a loose acknowledgement of that fact.
'The Government and HMRC continue to champion Making Tax Digital but it needs to make tax simple!'
For more information, please contact Nimesh Shah