HMRC Reverses Child Benefit Cuts After Flawed Fraud Crackdown Affects Thousands
Tax officials have admitted that a botched fraud crackdown wrongly stripped thousands of families of their Child Benefit payments, leading to a major reversal of policy. The crackdown, which went nationwide last August following a trial run, was designed to identify parents who had been out of the UK for more than eight weeks and should no longer be receiving the benefit.
Payments Restored to Over 17,000 Claimants
Nearly 17,100 claimants have now had their money reinstated after HMRC acknowledged significant problems with a new checking system that suspended payments for over 23,700 people. Speaking to MPs on the Treasury Select Committee, HMRC's top civil servant John-Paul Marks disclosed that 17,048 out of 23,794 cases – approximately 71% – have been resolved in favour of the claimants.
Only 1,109 people, representing less than 5%, were actually found to be breaking the rules. This leaves around 5,600 cases still under review, which Mr Marks explained involve customers who haven't responded to contact attempts and are therefore "deemed to have left the country."
System Flaws and Northern Ireland Complications
The extent of this policy reversal is much larger than HMRC had previously admitted. Back in November, Mr Marks informed MPs that payments had been reinstated in "more than 3,600" cases – less than a quarter of the actual figure now revealed.
One significant problem affected families in Northern Ireland, where people frequently leave the UK through a Home Office-monitored port but return via Dublin Airport in the Republic of Ireland. This created confusion in the system, which mistakenly believed these individuals hadn't returned to the UK.
HMRC has now made Northern Ireland residents exempt from certain international travel checks after recognising this geographical complication. The department has also reinstated Pay As You Earn (PAYE) record checks at an earlier point in the process and altered its approach to give customers sufficient time to respond before payments are halted.
Procedural Changes Implemented
Additional changes to the system now include:
- Allowing claimants at least one month to provide evidence of their entitlement
- Providing another month to reply before any decision is taken to stop Child Benefit
- Implementing more robust checks before transitioning from pilot schemes to full implementation
Mr Marks told MPs that the incident exposed weaknesses in how HMRC moves from pilot schemes to full implementation. "The important thing now is making all the changes to the customer journey," he said. "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."
MPs Question HMRC's Planning
Treasury Committee chair Dame Meg Hillier questioned how HMRC didn't anticipate the Northern Ireland problem during planning stages. HMRC customer strategy director Jonathan Athow suggested the pilot had been too limited to uncover the issue, explaining that the trial involved 200,000 claimants and identified 5,000 suspected non-compliance cases, but probably 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."
Related Phishing Scam Costs Soar
The same hearing also revealed that the bill for a massive PAYE phishing scam has rocketed to £56.7 million. The organised criminal operation affected approximately 100,000 PAYE customer accounts, enabling fraudsters to steal data and lodge bogus tax repayment claims.
Mr Marks informed MPs that the final taxpayer cost has jumped nearly £8 million from the £48.8 million previously revealed in HMRC's 2024-25 accounts. "We remediated all the cases and the final outturn was £56.7 million," he said. "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 confirmed that HMRC's cyber-defences are being strengthened, with the department establishing a dedicated fraud-prevention centre and appointing a new disaster recovery director as part of its response to these security challenges.
