Tax credit overpayments: How do you pay back overpayment of tax credits?
There are two tax credits, Working Tax Credit and Child Tax Credit. A tax credit overpayment happens when you have received more tax credits than you should have in a tax year, which this year runs from April 6, 2020 to April 5, 2021.
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Tax credits operate on a system of pay now, assess later.
After the end of every tax year, HMRC check to see if they have paid you the right amount for the year just ended.
If they have paid you more than they think you should have had, it results in a tax credit overpayment, and they will demand the money back from you.
If HMRC think you have been overpaid, they will say so on your tax credit award notice.
Unfortunately, it is not always black and white if you have been overpaid.
HMRC may send you a letter telling you that you have been overpaid.
It might also tell you how much the overpayment is and that you must pay it back straight away, or it might not.
You might not receive a letter at all and instead, your tax credit payments will go down automatically, without warning.
Working Tax Credit and Child Tax Credit are two of the types of tax credit you can get in the UK (Image: GETTY)
After the end of every tax year, HMRC check to see if they have paid you the right amount for the year just ended (Image: GETTY)
HMRC often uses debt collection companies to work on their behalf.
If you receive any communications, you must check with HMRC to see if it is genuine before making any payments.
How do you pay back an overpayment?
The letter you receive may demand your overpayment back at once.
But this is not the case – you do not have to pay back in one lump sum.
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HMRC may ask you for details of all of your income and what you need to spend it on (Image: GETTY)
The first letter is called a ‘Notice to Pay’, and usually gives you 42 days to pay but will tell you to contact HMRC if you need to pay over a longer period.
If you need to pay over a longer period, you need to work out what you can afford each month and ask if HMRC will accept it.
HMRC may ask you for details of all of your income and what you need to spend it on, so be prepared to hand this information over to them before calling.
Child Tax Credit is subject to overpayment rules (Image: GETTY)
What if I can’t pay?
If you are on long term benefits and you have no spare money and this situation is unlikely to change, you can ask HMRC to suspend recovery of the overpayment or to remit the overpayment.
HMRC will not ask you to pay any money back at this time, but they will only do this if they don’t think your income is likely to increase in the future.
It is rare these applications are successful and HMRC reserves the right to ask you for the money in the future if your circumstances change so that you can make some repayment.
You will need to show them that you have no money left after paying for essential things, like food, medicine, rent and bills.
If you do not contact HMRC and offer to repay the overpayment, HMRC can take further action to recover the money, including the use of bailiffs.
They should only ask you to repay what is affordable for you based on your income and what is essential for you to spend your money on.
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