Tax credit overpayments

Written by PayPlan on 25 June 2019

Receiving a letter from HMRC saying that you’ve received tax credit overpayments can be incredibly frustrating; not only because you won’t have been expecting it, but because you’ve now got to give back a chunk of money that HMRC gave you in the first place.

Why have I been overpaid in tax credits?

HMRC work out how many tax credits you’re supposed to get based on your application and your yearly income. At the end of the year they’ll look at the amount you’ve actually received; if it’s as they expected, then you won’t receive any deductions. If you’ve earned more than they expected, however, HMRC might say that you’ve received a tax credit overpayment and ask you to return some money to them.

How do I pay a tax credit debt?

There’s a variety of ways you can pay a tax credit overpayment. They include:

Paying the money directly

HMRC may ask you to pay your tax credit overpayment directly in the form of a monthly direct debit.

Having money taken directly from your benefits

If you’re currently receiving Universal Credit or some other form of benefits, then the amount for the overpayment will be taken out of this.

Receiving less tax credits in the future

Similarly to taking money from your benefit payments, HMRC may retrieve the money for your tax credit overpayment by reducing the amount you receive in tax credits. Once the overpayment has been accounted for, you’ll begin receiving the same amount of tax credits you did before the overpayment.

Having money taken directly from your wages

You may have the money for your tax credit overpayment taken directly from your wages if HMRC deem this necessary. This can only be done, however, for overpayments up to £3,000 if you earn less than £30,000 a year.

If you earn more than £30,000 a year, then HMRC can collect larger debts through wage deductions up to a maximum of £17,000. It’s worth noting that £17,000 is the maximum that can be taken if you earn £90,000 a year or more.  

Sending bailiffs or debt collectors to your home

If HMRC feel that they have no other option, then they may attempt to take back the tax credit overpayment by sending bailiffs or debt collectors to your home. This is very rare, and if you’ve already contacted HMRC and told them you intend to pay it’s highly unlikely they’ll do this.

Retrieving the money via a court judgement

HMRC may also take you to court to retrieve the money for the tax credit overpayment. Again, as long as you accept the overpayment and agree to pay it back, it’s very unlikely you’ll be taken to court.

Can I get tax credit overpayments written off?

Tax credit overpayments can only be written off if HMRC have made a mistake themselves. HMRC might agree to write off some of what you owe, but this will only happen if you’ve been paying off the overpayment for a very long period of time (over 10 years).

If you don’t agree with the payment, or think that you’re being asked to repay too much, then you should ask HMRC to review it. If they’ve made a mistake, then HMRC may reduce the amount or write it off entirely, but you should bear in mind that HMRC may still expect you to make payments towards the overpayment amount whilst they do this.

You can ask HMRC to review your case by calling them on 0345 300 3900 or completing and returning tax credits overpayments form TC846. You’ll generally have a maximum of three months to do this after you’ve first received notification of the tax credit overpayment.

When do I need to pay the tax credit debt by?

When you receive the letter saying you’ve been given a tax credit overpayment, you’ll usually be asked to pay the money within 30 days. If you can’t afford to do this and you’ve been asked to pay directly (i.e you’re not going to have deductions from future tax credits or your wages) then you’ll usually have one of the following three timeframes to pay the money back by.   

Paying the tax credit overpayment in 12 months

If you’re unable to pay the amount in 30 days without putting yourself into financial hardship, then you should be allowed to pay the amount in 12 monthly instalments. 

Paying the tax credit overpayment in up to 10 years

Your creditors may let you do this if you can’t realistically afford to pay the amount over a 12 month period. To do this you’ll generally have to be able to pay at least £10 a month, but if you can pay the full amount in under 3 years HMRC may allow you to pay less than £10 a month.

Paying the tax credit overpayment in over 10 years

This is an extremely long time period to pay off a tax credit overpayment, and as such HMRC may write off any money you owe if you’ve been making payments for a period of more than 10 years.

How can I avoid tax credit overpayments in the future?

If you receive tax credits, then unfortunately there’s no guaranteed way to avoid overpayments. You can reduce the chances of you getting one by ensuring HMRC know of any changes to your pay or any changes in your income; this will allow them to adjust the amount of tax credits you receive accordingly.

For free, confidential advice about debts or to see if you could be eligible for a debt solution, please call our helpline team on 0800 280 2816. You can find out if you’d be eligible for a debt solution online too; just use our online debt solution tool, PlanFinder.


Filed under Money Management

This article was checked and deemed to be correct as at the above publication date, but please be aware that some things may have changed between then and now. So please don't rely on any of this information as a statement of fact, especially if the article was published some time ago.

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