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Tax credit overpayments

What to do if you're overpaid tax credit, why you might receive an overpayment and how to challenge a tax credit overpayment and get it written off

In this article
What is a tax credit overpayment? Why do tax credit overpayments happen? How will I know if I’ve been overpaid? Challenging a tax credit overpayment
Making a tax credit appeal Filing a tax credit dispute How to reduce the chance of getting a tax credit overpayment

What is a tax credit overpayment?

Overpayments happen when you are paid more tax credit than you’re entitled to. HMRC will always pick up on this, and will demand that you pay any overpayment back.

The problem is it's very difficult to accurately check how much tax credit you should receive.

We’ve explained how to calculate your tax credit, but there are many reasons why you might get certain additions and reductions, making it hard to come up with an accurate figure.

Therefore, most people can't check whether they are being paid too much and may end up having to make repayments.

 

Why do tax credit overpayments happen?

You might be overpaid by HMRC if:

  • you don't give the right information when you first claim or when you renew your claim at the end of the year
  • you're late telling HMRC about a change in your circumstances or a significant increase in your income
  • you give the wrong information when you tell HMRC about a change in your circumstances
  • HMRC makes a mistake when processing your tax credit award
  • HMRC doesn't act on information you have given them.

How will I know if I’ve been overpaid?

It can be difficult to know you've received an overpayment until HMRC tells you, but there are a few things to look out for.

You might suspect that you’ve been overpaid if you realise you gave HMRC wrong information, or didn’t report a change in your circumstances that would mean you’d be paid less.

Other ways of telling whether you’ve been overpaid include:

  • you receive a letter or notice from HMRC telling you that you’ve been overpaid, or a letter asking you to make a repayment
  • your payments suddenly reduce unexpectedly – in some cases, HMRC will reduce your payments before the end of the tax year to prevent you having to make a repayment.

If an overpayment was made after HMRC made a mistake, you shouldn’t have to repay it.

In order to keep the money, you must be able to prove that you reported any changes in circumstances promptly, checked all award notices and notified HMRC with one month of any mistakes or errors.

Find out more: how to calculate your tax credit

Challenging a tax credit overpayment

There are two ways you can make a challenge to HMRC about your tax credit: through an appeal or a dispute.

  • an appeal is for when you think HMRC has calculated the wrong amount for your tax credit. So, if HMRC claims you were overpaid but you believe you were entitled to receive that amount
  • dispute is when you’ve been overpaid – and you agree that you’ve been overpaid – but you don’t think you should have to pay the money back. Usually, this would be because you believe HMRC made a mistake, or didn’t act quickly enough after you gave them new information.

There’s a different process for disputes and appeals, and you should make sure you’re clear which one best suits your situation.

You should also bear in mind that fewer than one in 10 tax credit disputes are successful.

Making a tax credit appeal

The steps below show the process you can follow to make a tax credit appeal.

1. Ask for an explanation

If you want to challenge a decision, you have to act fast, as there is a deadline of 30 days from the date you receive the original overpayment decision.

If you miss this deadline for reasons outside of your control, such as illness or the death of a loved one, you may still be able to have your decision looked at up to 13 months after the date of the original decision.

As a first step, phone the Tax Credit Office number, which will be on your letter, and ask for an explanation of the decision.

Note that the time limit will continue while you ask for an explanation, as it’s not an official part of the appeals process, but it’s important that you know why HMRC has made its decision.

You should make a note of the date and time of the call, the name of who you speak to, and what is said.

2. Have the decision looked at again

If you decide you want to continue, you must request a ‘mandatory reconsideration’, where the tax office will check to see if they think they made the right decision.

You can ask for this by using a WTC/AP form; you can fill it in online, or print it and send it in the post.

You’ll need to explain in detail why you think their decision is wrong

3. You'll receive the decision

HMRC will either decide they were wrong, and they’ll send you a new decision letter.

Or they’ll decide they can’t change the decision, and they’ll write to you to confirm this, sending two copies of the mandatory reconsideration notice.

You’ll also be told you have the right to appeal to an independent tribunal.

4. Make an appeal

If you decide you want to continue and make an appeal, you must make an appeal in writing to the tribunal service using an appeal form SSCS5 (if you are in England, Wales or Scotland). There are also guidance notes to help you fill in the form.

You must send the form within one calendar month of receiving the mandatory reconsideration notice.

If you are in Northern Ireland, you need to use appeal form NOA1, and you must send it within 30 days.

5. The first tier tribunal

Once your appeal form has been received, you’ll usually be sent an enquiry form to fill out and return within two weeks.

HMRC will be asked about your case, and you will receive copies of the papers that HMRC sent to the tribunal.

The first tier tribunal will decide if you are legally entitled to a benefit and can change HMRC’s decision if they think it’s wrong.

Note that the tribunal could make a decision that makes you worse off – for instance, if it thinks you should receive less tax credit.

It’s best to get advice before you decide to go to tribunal. If you manage to settle your appeal, you can withdraw it at any stage before the tribunal hearing date.

6. At the hearing

Either you, or your representative, will be asked to explain to a tribunal panel why you think HMRC’s tax credit decision is wrong.

They will have received all the information and evidence about the case already, but they may still ask questions.

You’ll be asked to leave the room while they make a decision. You may be told the decision there, and/or in writing within one month.

Note that if neither you or a representative attend the hearing, your appeal may be dismissed.

7. If you think the tribunal’s decision is wrong

You can only appeal a tribunal’s decision if you think there is something legally wrong.

You’ll need specialist advice to appeal the decision further, and must do so quickly.

Filing a tax credit dispute

The steps below show the process you can follow to make a tax credit dispute.

1. Ask for an explanation 

Phone the Tax Credit Office number, which will be on your letter, and ask for an explanation of the decision.

Note that the three-month time limit will continue while you ask for an explanation, as it’s not an official part of the dispute process, but it’s important that you know why HMRC has made its decision.

You should make a note of the date and time of the call, the name of who you speak to, and what is said.

2. Lodge a dispute

If you want to continue, you can use form TC846, or send a letter to the tax office – which has the advantage of being able to explain why you think HMRC’s decision is wrong.

You must lodge a dispute within three months of receiving an overpayment notice.

While HMRC considers your dispute, it will still continue to recover the overpayment. For this reason, it’s best to get some professional advice, as someone can request on your behalf to delay the repayment. If you simply refuse to pay, you could end up being taken to court.

3. Possible dispute outcomes

There are four possible outcomes of a dispute.

  • HMRC and the claimant have met their responsibilities. If both sides have done everything right, the overpayment is considered to be ‘naturally occurring’, which is built into the tax credit system. Therefore, it won’t be written off.
  • HMRC hasn’t met their responsibilities, but the claimant has. In this case, the overpayment will be written off.
  • HMRC has met their responsibilities, but the claimant has not. The overpayment won’t be written off, because the fault is with the claimant.
  • Neither HMRC or the claimant met their responsibilities. Here, the part of the overpayment that’s the fault of HMRC will be written off, but you’ll have to pay back the part that’s deemed your fault.

4. File a second dispute 

If you disagree with the outcome of the dispute, and get any further evidence that supports your case, you can make a second dispute.

This must be done within 30 days of receiving the first dispute decision.

You should explain what the evidence is and why it should change the previous dispute decision.

5. Make a formal Tier 1 complaint

If the dispute system still doesn’t bring the outcome you think you deserve, you can make a complaint through HMRC’s complaint procedures.

To file a complaint, you can write to or telephone the person you have been dealing with, tell them what went wrong, when it happened, who you spoke to and how you would like the matter to be settled. You can’t send in complaints by email.

This is a Tier 1 complaint.

6. Make a Tier 2 complaint

If you’re not satisfied with how your complaint was settled, you can make a Tier 2 complaint, by asking it to be referred to a senior officer.

They’ll take a fresh look at how the issue has been handled by HMRC, and will give you a final decision.

7. Go to the adjudicator

If you’re not happy with the Tier 2 complaint response, you can ask the adjudicator to look into your complaint.

The adjudicator is independent from HMRC. You can find out more about filing a complaint to the adjudicator on their website, and you must send the complaint to them within six months of completing a Tier 2 complaint.

8. Ask your MP to go to the Parliamentary Ombudsman

The final step of the complaints process is to write to your MP, explaining the situation, and ask them to refer your case to the Parliamentary Ombudsman.

Before doing this, check the ombudsman’s complaint checker tool to see if it’s something they can deal with.

Complaints must be referred within 12 months of receiving a complaints decision from the adjudicator.

How to reduce the chance of getting a tax credit overpayment

While overpayments and underpayments have been written into the tax credit system – and so are considered a natural part of the process – there are things you can do to reduce the chances of having to deal with an overpayment that you have to pay back.

Make sure you provide accurate details

When you first apply for tax credit and when you renew your tax credit each year, make sure you carefully check that all the information you give to HMRC is right – particularly in relation to your personal circumstances, how much you spend on childcare and how much you earn, as these things can affect how much you get.

Giving incorrect information could mean you are paid too much, and will have to repay this extra money further down the line.

What’s more, if HMRC thinks you knowingly provided the wrong information in order to get more money, you could be fined up to £3,000.

Find out more: Renewing your tax credit

Let the Tax Credit Office know as soon as anything changes

If you get married or divorced, your child stops being in education or moves out, or you have a baby, you'll need to let HMRC know within one month of them taking place, as these are all examples of changes in circumstances.

This is because they might change the tax credit you’re entitled to. If you could get more, the increase can only be backdated by a month, so you could miss out on extra money.

If the changes mean you’ll get less, you’ll be overpaid and will have to pay back any extra money. This will be backdated to whenever the change took place.

For example, if your child moved out of your house five months ago, and you had been receiving tax credit as if they were still living with you, you’d have to pay back five months’ worth of overpayments to HMRC.

Find out more: Tax credit and changes in circumstance