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This guide explains about tax credit overpayments and what to do if you think you have been overpaid. If you have had your tax credit payments reduced to pay back an overpayment, and it is causing you hardship, you can ask HM Revenue and Customs HMRC to consider reducing the amount they collect from you. This will mean it takes longer to pay back the overpayment.
If you are paying back the overpayment directly, you can ask HMRC not to recover some or all of the overpayment if recovery would cause you hardship or you have other special difficulties, such as mental illness, illness or disability. You may be able to negotiate a suspension of recovery, reduction of the amount to be recovered or for the overpayment to be written off. UK's Tax Credit Overpayments information If you have been overpaid, you can make a complaint if you are unable to reach an agreement on recovery.
It is not widely known and for that reason can often be overlooked. Further information is available in the tax credit manual. Some people will be paying back two overpayments, one via ongoing recovery and another via direct recovery.
This often happens where there is an overpayment on an old claim, and a new overpayment on a current claim. Since August , HMRC have implemented a new policy which means that any direct recovery action should be suspended until the ongoing recovery ends. Whilst we welcome this policy, HMRC are not proactive in telling claimants about it.
If this applies, you should ask Debt Management and Banking to suspend the direct recovery action. HMRC have produced some information for cases involving claimants with mental health issues. The following is reproduced from the intermediaries guidance:. HMRC will deal with mental health cases carefully and sympathetically to avoid distress to the customer.
HMRC will need a letter from a health care professional or mental health social worker explaining the mental health problem to enable it to deal with these cases.
The evidence should include the nature of the illness and as far as possible, whether the illness is likely to be long-term for example, schizophrenia or where the prospects for recovery are expected to be good. If the information has not been provided HMRC will need to write to the claimant or third party asking for the documentary evidence.
Only in exceptional circumstances will the evidence received be insufficient to relieve the claimant from responsibility for payment. If the mental health problems existed at the time the overpayment occurred then Benefits and Credits can consider whether exceptional circumstances are such that writing off the overpayment is appropriate.
If the mental health problems exist at the time the overpayment is being recovered then DM will review the circumstances:. Further guidance for cases involving claimants with mental health issues can be found in the tax credit section of the DM manual. Further information about the manual can be found in section 5.
In exceptional circumstances, for example where a claimant is seriously ill or a close family member is ill, a request can be made to HMRC to suspend recovery of the overpayment until such time as the claimant is able to discuss their financial situation fully with HMRC. Claimants or their advisers should phone the debt management payment helpline to explain the situation if this applies.
Your continued use of revenuebenefits indicates your consent to our use of cookies. Please read our privacy policy , about the use we make of the information you provide to us. Web design by MID. Legislation vs practice Making a claim How to claim Backdating Protective claims Entitlement WTC elements CTC elements 2 child limit policy Payments What is income The four steps Disregarded income Calculating tax credits income Employment income Pension income Income from self-employment or trading income Social security income Student income Investment income Property income Foreign income Notional income Miscellaneous income Real Time Information and tax credits Changes of circumstances Changes that must be reported to HMRC Bereavement Other changes How to notify changes Understanding the disregards Understanding childcare Who can claim Calculating costs Understanding disability Understanding couples Understanding self-employment Special circumstances Foster carers Domestic violence Overpayments and underpayments How much can your client get?
Capital rules Self-employment What counts as self-employment for UC? How much is the National Minimum Wage? Who is an eligible person? How much is Tax-Free Childcare worth? What are qualifying childcare costs? What does the law mean? How do tax credits work? How much can your client get? Tax Credits: Dealing with overpayment debt This section of the site provides advisers with information about repaying tax credit debt. Recovery of old tax credit debts Claimants may contact you with very old tax credit debts, often they will say that they have not heard from HMRC for many years.
The direct recovery process The following table gives an overview of the direct recovery process. Process Explanation Step 1 Notification of overpayment — TC When a claim ends, for whatever reason, and any overpayment is outstanding, the tax credit system will issue a TC notice to pay form once any appeal period has passed normally 30 days.
Step 3 DM checks. The claimant will need to speak to the DCA directly — they will arrange a time to pay and consider hardship requests which are then referred back to HMRC — see below Step 5 Case passed back to HMRC Eventually, after at least 12 months, if there has been no contact with the claimant the debt will be passed back to HMRC.
Step 6 Legal proceedings If no contact can be made, or the claimant refuses to make a payment arrangement, HMRC may consider using one of their enforcement powers such as taking control of goods distraint or county court action to recovery the debt. Direct repayment Claimants can repay HMRC by various banking services, including on-line banking, Faster Payments, payment at a bank or building society or sending a cheque by post. Time to pay arrangements The TC see Step 1 in the table above normally gives claimants 42 days to pay the amount stated.
The following time to pay options are available: 12 months HMRC should readily accept an offer to repay the debt in twelve monthly instalments. No additional questions should be necessary. Over 12 months up to 10 years Claimants can ask HMRC to repay over any period up to 10 years without providing full income and expenditure details.
Staff are encouraged to try and set up a direct debit arrangement for any time to pay agreements. This is most likely to be needed where the overpayment debt is large and the claimant has a low income.
In assessing ability to repay, HMRC state that they will compare actual expenditure with figures produced by the Office of National Statistics and seek an explanation from the claimant where their figure is higher. This should not be done for expenditure that the claimant does not have any control over unless they appear excessive. This includes things like rent, mortgage, secured loans, council tax, court fines, pension payments, life assurance, HP or conditional sale, TV licence, maintenance and child support.
Enforcement proceeding and taking control of goods distraint The final step in the direct recovery process involves HMRC commencing legal proceedings, normally in the county court, to obtain judgement for the debt or trying to take control of goods distraint which involves the seizing of goods where HMRC believe the person has the means to repay but refuses. Financial hardship in direct recovery cases The information in this sub-section applies to direct recovery cases.
Claimants who are unemployed with no assets or savings In such cases, HMRC should suspend recovery for 12 months. Claimant unable to meet living expenses In situations where a claimant cannot meet essential living expenses such as water, gas and electricity, they should request that the overpayment recovery be suspended until their circumstances improve. Financial hardship process For those in the direct recovery process, DM are tasked with recovering the debt and it is with them that initial contact should be made to discuss financial hardship.
Ongoing recovery The ongoing recovery process HMRC's tax credit operations is responsible for ongoing recovery cases. In-year recovery Sometimes HMRC adjust an award during the award period to try to prevent or reduce an overpayment from accruing by the end of the tax year.
Tax debts are not covered by this law, but tax credit overpayment debts are, in theory. More detailed information about challenging overpayments can be found on Revenuebenefits — a website for advisers dealing with tax credits and other HMRC benefits.
Skip to main content. What can I do if I have an overpayment? Updated on 10 September Tax credits and benefits. Introduction to overpayments The tax year runs from 6 April in one year until 5 April in the next year. What are overpayments? Overpayments occur when you receive more tax credits than you are entitled to for the year. What causes tax credit overpayments? There are a number of reasons why an overpayment might arise following such a change: A large increase in your income from one year to the next.
You are late reporting a change in circumstances that causes your entitlement to fall — perhaps a drop in working hours, a change of household or a child leaves full-time education, etc. You report an estimated current year income which turns out to be too low. HMRC delay processing a reported change. You make a mistake in your own favour on your claim form or renewal form.
HMRC make a mistake, whether human or computer error, or give you erroneous advice which you act upon to your detriment. An award is adjusted downwards following an investigation by HMRC.
The payments you receive in the first few months of a new tax year from April , before the renewal forms have been processed, are too high. You fail to complete your renewal forms on time. What should I do? What can I do if I think the overpayment is wrong? Appeal Dispute Official error challenge There are strict time limits for each of these that run from the date of the final award notice from the year of the overpayment.
Notional offsetting Sometimes, tax credit claimants who form a couple or who become single, either because they separate or because one partner dies, are slow in reporting the change to HMRC. Cross-claim recovery can apply in these situations: A joint ongoing claim can be reduced to recover debts from old single claims of one or both members of the couple. A single ongoing claim can be reduced to recover debts from an old single claim of the same person.
A joint ongoing claim can be reduced to recover debts from an old joint claim if the same two people are involved in each claim. I am no longer getting tax credits — how will HMRC recover my overpayment? If HMRC ask you to repay the debt directly If the claim that caused the overpayment has ended and HMRC cannot collect the money back from ongoing payments of tax credits they will try and recover the debt directly from you.
If this applies, you should ask Debt Management to suspend the direct recovery action. If HMRC pass the debt to a debt collection agency HMRC also pass debts to private debt collection agencies in the early stages of recovery and you may receive a letter from one of the agencies. If you are getting universal credit If you are receiving universal credit , your tax credit debt will pass over to DWP or DfC and they will collect it from your UC.
What happens to debts from a joint tax credits claim? What income is taxable? What tax allowances am I entitled to? What tax rates apply to me? How is my tax collected? What if I cannot pay my tax bill? Do I need to complete a tax return? Self Assessment: understanding the basics What is Simple Assessment?
How do I claim tax back? How do I claim back tax if I complete a tax return? How do I claim back tax on savings income? How do I claim a marriage allowance refund? How do I claim back tax on a payment protection insurance PPI pay-out? Should I use a tax refund company?
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