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Tax Credits Overpayments

This guide explains about tax credit overpayments and what to do if you think you have been overpaid.

1. What is an overpayment ?

Tax credit awards are calculated annually and your award for a year is only finalised after the end of that tax year. An overpayment of tax credit will be calculated if you received:

  • more than your entitlement for that year, or
  • a payment to which you were not entitled.

Your tax credit entitlement may be adjusted within a tax year to avoid an end-of-year overpayment.

A tax credit overpayment can happen if:

  • you give incorrect or incomplete information when making or renewing a claim
  • you fail to notify a change of circumstance
  • you don’t report significant increases in income
  • you don’t renew your tax credits on time
  • HM Revenue and Customs (HMRC) make an error.

Reviewed: August 2017

2. How would I know if I have been overpaid?

You may know or suspect that you have been overpaid if:

  • You receive a letter or notice telling you that you have been overpaid or a letter asking for repayment of an overpayment.
  • You realise that you gave incorrect information
  • You realise that you have not reported a change
  • Your tax credits stop after you missed the renewal deadline.
  • Your payments reduce unexpectedly.

Reviewed: August 2017

3. What should I do if I think that I am being overpaid?

All overpayments of tax credits are legally recoverable no matter how they were caused; so make sure you take steps to correct your award. However, in some cases you may be able to ask HM Revenue and Customs (HMRC) not to recover the money.

You should:

Reviewed: August 2017

4. Are all overpayments of tax credits recoverable?

Tax credits are assessed on an annual basis and your total entitlement for a year is not finalised until the end of that tax year. This means that an element of under- and over- payment is built into the system. It is expected that all overpayments will be carried over and recovered during the next tax year.

This means that all tax credits overpayments are legally recoverable. However, HM Revenue and Customs' HM Revenue and Customs' (HMRC's) Tax Credits: What happens if I've been paid too much' guidance states that an overpayment will not be recovered if it was due to a mistake at the tax credit office and you met all of your responsibilities by reporting changes in circumstances promptly, by checking all award notices and notifying HMRC within one month of any mistakes or errors.

If both you and the Tax Credit Office made a mistake, they will decide whether to recover some or all of the overpayment.

Reviewed: August 2017

5. Who can the overpayment be recovered from?

Overpayments are recoverable from you, if the overpayment was made on your claim as a single person, or from you and your partner (or former partner), if the overpayment was made on your joint claim as a couple.

If you have separated from a partner, you should not normally be asked to repay more than 50% of the overpayment. You can agree with your former partner to pay different proportions of the overpayments each – example, one paying 30% and the other 70%. However, if this agreement is not kept, you may be asked to repay at least 50% of the remaining debt.

HM Revenue and Customs' (HMRC's) 'Tax Credits: happens if I've been paid too much' guidance has more information about recovery of tax credit overpayments.

Reviewed: August 2017

6. How are tax credit overpayments recovered?

Tax credit overpayments may be recovered by:

  • Deduction from your on-going tax credit award;
  • Direct recovery from you;
  • Deductions from a Universal Credit award;
  • Direct recovery from bank accounts;
  • Court action. 

If you are still receiving tax credits, the overpayment will be recovered from your on-going award.  In some cases, HMRC can recover old overpayments from new claims,even if the people claiming are different.  For example a new joint claim can be reduced to recover debts from an old single claim that you or your partner had.

Your award may be reduced by 10%, 25%, 50%, or 100% of the amount you would otherwise receive, depending on your circumstances. See HMRC's 'Tax Credits: What happens if I've been paid too much' guidance for further information.

If recovery from your on-going tax credits is not possible, you will be asked to repay the full amount and given contact details to make a different arrangement. If the overpayment was on an award paid on your joint claim as a member of a couple, the overpayment may be recovered from you or your joint claimant. Normally, you will only be asked to repay 50% of an old joint overpayment debt and your former partner will also be asked to repay 50%.

If you move from tax credits to Universal Credit, the Department for Work and Pensions (DWP) will recover any tax credit overpayment debt from your Universal Credit payments.  It is also planned that DWP will start recovering other old tax credit debts even if you are not moving to Universal Credit - this means they will be able to ask your employer to deduct payments directly from your wages.

If you do not repay, you may face court action. This must normally be started within six years of the overpayment decision.

If you are threatened with court action, you should seek advice from a benefits adviser as a matter of urgency. HMRC may also try and remove goods from your property, this is called 'distraint' or they may take the money directly through your bank account in more serious cases.  This is called 'direct recovery of debt'.


Reviewed: August 2017

7. What if I can’t afford to repay?

For some people, having to pay back an overpayment of tax credit may cause financial problems.

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.

See HMRC's 'Tax Credits: What happens if I've been paid too much' guidance and GOV.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. See GOV.UK's Tax Credit complaints information

If you can't afford to repay an overpayment, we recommend that you get advice from a benefits adviser.

Reviewed: August 2017

8. What should I do if I don't think I have been overpaid?

You can’t appeal against a decision to recover a tax credit overpayment, even if the overpayment was the result of HM Revenue and Customs (HMRC) making an error. However, you can appeal if you think there was a mistake in calculating the amount of tax credits you were entitled to and therefore there should be no overpayment.

See our Challenging a tax credit decision guide.

Reviewed: August 2017

9. What should I do if I think the overpayment was not my fault?

If you think that HM Revenue and Customs (HMRC) made a mistake or gave you the wrong advice and that led to the overpayment, you can dispute the overpayment. See the GOV.UK information on how to dispute a tax credit overpayment

You can dispute the overpayment by:

Filling in form TC846 Tax Credits Overpayment (PDF file size 182kb), or
Writing to HMRC at Overpayments Dispute Team, Tax Credit Office, Preston, PR1 4AT

If you decide to dispute an overpayment by writing to the tax credit office, make sure you include the following details:

  • Your full name and contact address
  • Your national insurance number
  • The date of the overpayment decision you are disputing
  • When the overpayment is said to have happened - the tax year or period 
  • Why you are disputing the overpayment - detail any actions you have taken or contact you have made to make sure your award is correct, also detail the mistakes HMRC have made or the advice they gave you that led to the overpayment, include dates and names where possible
  • Your signature.

Time limit

You have up to three months from the date you were sent the decision that you have been overpaid to dispute recovery of that overpayment. This is usually when you receive your final award notice for the year.

Reviewed: August 2017

10. How do I avoid a tax credit overpayment?

Report relevant changes straight away – see HM Revenue and Customs (HMRC) guidance on changes that you need to report about tax credits

Renew your tax credits on time by checking and returning the declaration by 31st July – see HM Revenue and Customs (HMRC) guidance on renewing your tax credits

Check the renewal documents carefully and make sure that you give accurate and up-to-date information

Check all award notices carefully and report any mistakes about your circumstances. See HM Revenue and Customs (HMRC) guidance on how to check your award notice

Reviewed: August 2017