HM Revenue and Customs (HMRC) is warning people claiming Child Benefi t of a new tax investigation which could see some families being issued with a fine and having their payments paused.
During the coronavirus pandemic, HMRC reduced the number of checks it made on claimants while staff were redeployed elsewhere in the business, however, it has now been given new powers to investigate the financial records of 170,000 earners who may have been wrongly awarded the benefit.
This is part of a tax avoidance measure passed by MPs last week which will allow the UK Government to claim back benefit overpayments.
Birmingham Live reports that HMRC has now started checking if parents in receipt of Child Benefit should be paying tax and that those who fail to notify the Child Benefit Office could receive fines of up to 30 per cent on top of what they owe.
Compliance checks on Child Benefit claims fell from a high of 125,594 in 2019/20 to just 45,553 in 2020/21, after doubling in the year before the pandemic began.
Figures show that 96 per cent of those checks resulted in tax being owed.
Those who need to pay the charge must submit a Self-Assessment tax return each year before January 31, even if they are employed and normally pay their tax through PAYE.
Sean McCann, Chartered Financial Planner at NFU Mutual, said: "HMRC dramatically increased the number of checks they made before the pandemic when over 120,000 families were contacted in a single tax year, but as staff were redeployed to deal with Covid schemes, that figure collapsed.
"Families who didn't receive reminder letters last year shouldn't assume the tax isn't owed. If you have income over £50,000 and receive Child Benefit or live with a partner who does, you may need to repay it.
"As wages increase, more families are going to get caught by the tax. The £50,000 threshold has remained frozen since the tax was first introduced in 2013. With the self-assessment tax return deadline looming at the end of January it's worth checking now if you need to pay it."
Child Benefit payment rates and how HMRC calculates tax payments for high earners
Child Benefit pays £21.15 per week for the eldest or only child and £14 for all additional children.
These rates will rise by 3.1 per cent from April 11, 2022 to £21.80 and £14.45 respectively.
Only one person can claim Child Benefit for a child, however, household income for both partners is taken into account.
If your (or your partner's) individual income is over £50,000, you will be taxed on Child Benefit and receive a lower amount.
If you or your partner earn £60,000 or over, you will lose all of your benefit through tax.
People who fail to notify HMRC that they owe tax could receive fines of up to 30 per cent on top of what they owe. However, since a penalty review in 2018 changed what constituted a 'reasonable excuse' for not declaring the number of fines issued has fallen.
During the 2019/20 financial year there were only 1,217 fines issued by HMRC.
"Although the number of fines being issued on top of the tax for failing to notify HMRC has fallen, the taxman is still likely to chase you if you ignore their reminder letters,” said Mr McCann.
HMRC said: "The high-income Child Benefit charge was introduced in January 2013. It is a tax charge that applies to anyone with an income over £50,000 who gets Child Benefit, or whose partner gets it.
"Anyone who has to pay the charge will need to pay an amount equivalent to some or all of the Child Benefit that they or their partner is entitled to receive. The tax charge increases gradually for taxpayers with incomes between £50,000 and £60,000.
"The amount to pay depends on an individual's adjusted net income, and the amount of Child Benefit the claimant is entitled to. Adjusted net income is total taxable income minus certain tax reliefs, for example for: trading losses [for the self-employed], Gift Aid charity donations, and pension contributions.
"The charge is equal to one per cent of a family's Child Benefit for every £100 of income that is over £50,000 each year. If an individual's income is over £60,000, the charge will equal the total amount of the Child Benefit.
"Families can use the Child Benefit calculator to work out how much tax they may have to pay."
Since it was introduced in January 2013, the high-income Child Benefit tax has raised £2.95 billion for HMRC.
It has saved the UK Government an estimated £4.9 billion on top of that from families opting out.
At the last count, 624,000 families had opted out of receiving it and 373,000 paid it.
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