Overpayment of tax credits

How do overpayments happen

What you can do to dispute them

Paying back an overpayment more slowly

A common problem with Tax Credits is overpayments. This is where HMRC have paid you more tax credits than you should have had.  If you have had your award changed or stopped because of an overpayment, a tax credits overpayment is being recovered from another benefit (for example, Universal Credit), or you have been asked to pay money back directly, it is a good idea to speak to a specialist benefits adviser who can check whether the overpayment has been calculated correctly and tell you about any options you may have. This is not something Working Families can help you with.

Overpayments are common in the tax credit system. These are just examples of circumstances which cause overpayments:

  • Your tax credits are based on the previous tax year and your income for the current tax year turns out to be over £2,500 more than the previous tax year
  • Your tax credits are based on an estimate of current year income which turns out to be too low
  • You stop being entitled to an element of tax credits and your award is not adjusted quickly.

More information about how overpayments can happen is on the GOV.UK website. The Low Incomes Tax Reform Group also have lots more information about tax credits overpayments and how to deal with them.

If you are unhappy with an overpayment and feel that you should not have to pay it back, you can:

  • Challenge the amount of the overpayment (because you think you were not overpaid, or the amount of the overpayment is wrong). You will need to ask for the decision to be looked at again. If you are still not happy, you can appeal.
  • And/or dispute the recovery of the overpayment (because you think you did everything you could to keep your award correct, and the overpayment is HMRC’s fault). Use form TC846 to do this
  • And/or complain about HMRC’s delays or mistakes.

HMRC will not suspend recovery because you think you should not have to pay the money back, but should suspend recovery if you appeal because you think you have not been overpaid.

More information on HMRC’s policy on overpayments is here.

If you are unable to challenge the overpayment or dispute recovery or this doesn’t work, then you may still be able to negotiate to pay the overpayment back more slowly. You may need to supply evidence of financial hardship to do this, so it may be useful to get money advice.

There is lots more information about challenging tax credits decisions, disputing recovery and complaining on the GOV.UK site, but it is a good idea to get advice from, for example, a Citizens Advice Bureau, about how to deal with the problem. Advice Now also have a useful factsheet on overpayments which will help you understand your options.

If you have further questions and would like to contact our advice team please use our advice contact form below or call us.

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