Families may face fines as 170,000 benefit claims to be investigated by HMRC

Tens of thousands of working families could be investigated as the government has changed the law allowing HMRC to chase those who may have been overpaid child benefits.

In new powers given to the tax authority, it can now investigate the financial records of 170,000 earners who it believes may have wrongly received the benefit.

The change is part of a tax avoidance measure passed by MPs last week which allows the government to claw back benefit overpayments.

Under the new powers, HMRC will be able to issue "discovery assessments" to employed workers who it believes should pay back child benefit.

But cash-strapped families argue they were not aware of changes in the scheme that resulted in them overclaiming originally.

The new rules state a discovery assessment can be issued if officials find "careless or deliberate" behaviour.

According to the Mirror, HMRC has gone down this route before – and in 2018, issued more than 168,00 fines for careless claiming.

If an investigation finds that the household overclaimed due to carelessness, HMRC will now be able to trawl through six years of their financial records and issue a penalty.

In 2013, the Government made a huge change to child benefit payments known as the High Income Child Benefit Charge (HICBC).

The changes meant that anyone earning more than £50,000 a year would have to pay back some of that money at the end of every tax year at a rate of 1% of every £100 earned over £50,000.

It also meant anyone earning £60,000 or more would have to repay the entire amount back.

But people argued they were not aware of these rules and therefore continued to claim it unknowingly at the rate of £21 a week for a first child and £14 a week for additional children.

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Last year, one father took the tax authority to court over the penalty fine – and won the case.

Lawyers representing 400 claimants say issuing discovery assessments for employees paid through PAYE is unlawful because HMRC already had that person’s PAYE earnings on record.

HMRC is contesting the decision in the Court of Appeal. If it loses it will have to pay back £2million.

It could then face claims from the 168,838 other claimants to whom it has issued discovery assessments for overclaiming child benefit between 2013 and 2019.

James Austen, a barrister at Collyer Bristow, which is bringing the legal case against HMRC, said: "In this case there was no tax avoidance and the taxpayers being penalised by this retrospective move were typically oblivious of their responsibilities."

HMRC said: "The measure will ensure those liable for these tax charges are treated in a fair and consistent way, and that individuals who do not notify and report their liability to these charges cannot gain an unfair advantage over the majority who follow the rules.

"The measure does not create new liabilities or obligations for taxpayers, and confirms the longstanding and widely accepted legal position in place before recent tribunal decisions."

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