HMRC Child Benefit update for thousands of parents | Personal Finance | Finance
Thousands of families wrongly stripped of child benefit by HMRC after a botched fraud crackdown have finally had their payments restored.
Almost 17,100 claimants have seen their money reinstated after the tax authority admitted serious flaws in a new checks regime that froze payments for more than 23,700 people.
The crackdown, launched nationwide last August after a pilot scheme, was meant to identify parents who had left the UK for more than eight weeks and were no longer entitled to child benefit.
But a crucial safeguard – an early check of Pay As You Earn (PAYE) data – was quietly dropped when the system was rolled out, leading to thousands of people being wrongly flagged as having left the country.
Appearing before MPs on the Treasury Select Committee, HMRC permanent secretary John-Paul Marks revealed that 17,048 out of 23,794 cases, or 71%, had now been resolved in favour of claimants.
Just 1,109 people, or just under 5%, were ultimately judged to be non-compliant. That leaves around 5,600 cases still under investigation, which Mr Marks said involved customers who had failed to respond to letters, phone calls or other attempts at contact and were therefore “deemed to have left the country”.
The scale of the reversal is far larger than HMRC previously admitted. In November, Mr Marks told MPs that payments had been restored in “more than 3,600” cases – less than a quarter of the true total.
One major flaw hit families in Northern Ireland, where residents often leave the UK via a Home Office-monitored port but return home through Dublin Airport in the Republic of Ireland – confusing the system into thinking they had not come back.
HMRC has since exempted Northern Ireland residents from some international travel checks after acknowledging the problem.
Mr Marks told MPs the department had now reinstated PAYE checks at an early stage and changed its approach so customers are given time to respond before payments are stopped.
Further changes include giving claimants at least one month to evidence their entitlement, followed by another month to respond, before any decision is made to terminate child benefit.
Mr Marks said the episode highlighted weaknesses in how HMRC moved from pilot schemes to full roll-outs.
“The important thing now is making all the changes to the customer journey,” he told MPs.
“We will take it very slowly this New Year to get it right because we do have a fraud-and-error exposure that is a quarter of a billion pounds a year.”
Treasury Committee chair Dame Meg Hillier questioned how HMRC failed to foresee the Northern Ireland issue. HMRC customer strategy director Jonathan Athow suggested the pilot had been too small to reveal the problem.
He said the trial covered 200,000 claimants and identified 5,000 suspected non-compliance cases, but likely included only around 140 Northern Ireland cases.
“More generally, we know that the data we get from the Home Office on entries and exits is imperfect, and we were very clear on that all the way through,” he said.
“It should only be the start of an enquiry, not determining whether someone is eligible or not.”
The same hearing also revealed that the cost of a major PAYE phishing scam has climbed sharply. The organised criminal attack targeted around 100,000 PAYE customer accounts, allowing fraudsters to obtain data and submit false tax repayment claims.
Mr Marks told MPs that the final cost to taxpayers has now reached £56.7m, up nearly £8m from the £48.8m previously disclosed in HMRC’s 2024-25 accounts.
“The loss when we last saw you was just under £49m. We disclosed that in our accounts,” he said.
“We remediated all the cases and the final outturn was £56.7m. So it was marginally higher than what we knew at the time. And arrests were made and we worked through the Romanian authorities and with authorities in the UK.”
Mr Marks said HMRC’s cyber-resilience was improving and confirmed the department has set up a dedicated fraud-prevention centre and appointed a new disaster recovery director as part of its response.
