Thousands of families are being chased by the taxman after they failed to repay child benefit that they had received but were not entitled to keep.
Since January 2013, parents who earn more than £50,000 a year have been required to pay back some of the child benefit they receive from the Government. Those with a yearly income of £60,000 or more must return the whole payment.
Repaying the child benefit requires the parents affected to submit a self-assessment tax return. However, thousands of parents have failed to do so and are now being contacted by HMRC.
About 41,000 letters will be sent to taxpayers who have failed to repay child benefit since the new rules were introduced. Some of the parents are likely to face fines for late payment, in addition to the amount to be repaid.
A further 60,000 warning letters will be sent to those who passed the £50,000 income mark for the first time in the 2017-18 tax year. These taxpayers are required to submit a tax return and pay the money owed by 31 January 2019.
HMRC is increasing its efforts to collect tax owed. Those who have assets overseas have also come under the taxman’s scrutiny.
Patrick Connolly of Chase de Vere, a financial adviser, said that, despite the child benefit rules being more than five years old, many parents were still unsure whether they owed money.
“While the basic concept of the high-income child benefit charge is quite easy to understand, its implementation is particularly confusing and leaves higher-earning parents wondering whether they should stop receiving child benefit or continue to take it and then face a tax charge,” he said.
Mr Connolly said high earners could elect not to receive child benefit payments in the first place, but this could affect their entitlement to the state pension in later life. He added: “There is an added layer of complexity for those who have to pay back HMRC, as many of these people don’t ordinarily complete self-assessment returns and may not know what they need to do and when they need to do it.”
An HMRC spokesman encouraged those who had received a letter but were unsure of their tax liabilities to contact it directly.
“Those who are contacted and then ignore the rules face a penalty unless they have a reasonable excuse and something stopped them meeting their tax obligation,” HMRC said. “We want our customers to get the benefits they’re entitled to – we don’t want to charge penalties.”
Mr Connolly added: “With a system that is so confusing, it is no wonder that people make mistakes.”