HM Revenue & Customs (HMRC) has issued a public apology after a crackdown on fraud led to the incorrect suspension of child benefit payments for thousands of families.
An Apology and an Urgent Review
The tax authority has launched an immediate review of its decision to remove around 23,500 claimants from the child benefit scheme. An HMRC spokesperson stated, "We’re very sorry to those whose payments have been suspended incorrectly."
This action follows a pilot scheme that HMRC said in August had saved £17 million in wrongful payments over a 12-month period. However, it is now clear that the process also impacted a significant number of legitimate claimants.
Changes to the Process and Wider Financial Warnings
In response to the error, HMRC has pledged to take action. The process has been updated to give customers one month to respond before any payments are suspended. Officials are now working through cases using PAYE data to identify how many rightful recipients were affected, with the review expected to be completed before the end of the week.
Despite the mistake, HMRC reiterated its commitment to protecting public funds, stating it is "confident that the majority of suspensions are accurate."
Pension Lump Sum Warning Ahead of Budget
Separately, financial experts are warning UK households against hastily accessing their tax-free pension lump sum ahead of the Labour Party's Autumn Budget in two weeks. Under current rules, individuals can usually take up to 25% of their pension tax-free, capped at £268,275 for most.
With rumours of potential changes, some may be tempted to 'lock in' their entitlement now. However, personal finance experts at Hargreaves Lansdown caution that this move could be a mistake.
"Unlike a game of hokey-cokey, you can’t just pull out your tax-free lump sum and put it back in – doing so could land you with a hefty tax charge," they said.
Withdrawing the funds unnecessarily could:
- Derail long-term financial plans.
- Weaken financial resilience.
- Bring savings into the scope of inheritance tax, capital gains tax, and income tax.
They strongly advise that any decision to access pension funds should be carefully considered within the context of a long-term financial strategy.
