Tax Credit Overpayment

While the ugly phrase ‘tax credits’ sounds like it reduces your liability, actually it means you get a payout, and for many it means thousands. Even those with family income up to £66,000 could be entitled to cash, so it's crucial to check. Plus every year, by July 31, ensure you renew or future payments could stop & past payments go wrong.

• What are tax credits?
• Renew it or lose it
• What if my circumstances change?
• What to do if you're overpaid
• Should I be getting tax credits?
• Tax credits Q&A
• Related Articles / Discussion
  
  

Also see the Childcare Tax Credits and Benefit Check-up guides.

What are tax credits?

Tax credits are payouts made regularly into your bank account from the state to support those with children or in work but with a low income. They're paid via the tax office and anyone aged over 16 who normally lives in the UK can apply to get them.

There are two types of tax credits and you can be eligible for none, one or both:

Child Tax Credit
Anyone with children, whether working or not, could be eligible

Working Tax Credit
Anyone who works, whether they've got kids or not, could be eligible

The amount you can get depends on a number of factors:

• Your income. The more you earn, the less you're likely to get (see what counts as income?).
  
  
• Single or couple. Couples need to make joint claims based on household income (see what counts as a couple?).
  
  
• Number of children. The more kids, the more you could get.
  
  
• Working hours. Work over 16 or 30 hours (depending on other circumstances) a week to be eligible.
  
  
• If you've a disability. More's available for those getting some disability or sickness benefits.

For more on the specific entitlements and exactly how much you can get see the Child Tax Credit and Working Tax Credit sections.

Renew it or lose it

Every April or May those who get tax credits will be sent a renewal pack, which needs to be sent back by 31 July. It's vital that you deal with this as it has much more significance than you may think.

Ensure you check the renewal EVEN if you don't want to claim anymore.

This is because the renewal pack isn't just estimating your credits for the next year, it's checking whether you were correctly paid for the last year. So failing to sort it out could leave you suffering overpayment or underpayment problems.

How does the renewal system work?

The packs look at how much you earned in the previous tax year (April to April) which is then used to check you received the correct payment last year and also to calculate the amount you’ll get the next year.

What’s in the pack?

Everyone will get an Annual Review form and some will get an Annual Declaration form too.

The Review Form. Received by everyone

What is it? It's simply a form for you to look through and indicate if anything has changed. To recognise it, at the top it says "Tax Credits - Annual Review for the year ended 05/04/xx"

Who gets it? Everyone, but those who ONLY get this form are people just getting the family element of Child Tax Credit or those who claimed tax credits but didn't get them because their income was too high.

What to check? Check all the information is correct, especially income. If it is (and you only received this form) you don't need to do anything, your credits will be automatically renewed. However if any information is wrong, let the tax office know as soon as possible via the Tax Credit Helpline on 0845 300 3900 (or 01355 359007 may work too).

What if I miss the deadline? If you have changes and miss the deadline, you risk being overpaid or underpaid. Underpayment means you won't get what you're due, and even if you do try and claim later, you can only backdate for three months so may miss out.

Overpayment means they give you too much and, while this may sound good, the tax office will ask for the cash back even if you've spent it. This is one of the single biggest tax credit nightmares and you need be careful.

If you deliberately mislead over tax credits you can be fined or, in the very worst case, criminally prosecuted.

The Declaration Form. You must check and return it if you get one

What is it? It's a form with a few assessment questions on. You MUST complete it and return it to the tax office if you've been sent one or your tax credits may stop. The declaration form is in four parts: benefits, income, circumstances and a place to sign, and has a few coloured boxes to complete.

Who needs to fill it in? Only people who receive one. If you don't get one, you don't need to fill it in. It's as simple as that.

What to check? You need to check whether the details on your review form are correct but make any changes on the declaration form.

What to do? If it's all correct, sign the form and send it back or call the Tax Credit Helpline on 0845 300 3900 (or 01355 359007 may work too) to confirm your details. If you have changes, complete them on the form and send it back or call the Tax Credit Helpline.

What if I miss the deadline? If you fail to send back the declaration form your tax credits will stop. You'll then need to make a new application, which can only be backdated for a maximum of three months, so you could miss out on some payments AND have to pay back any money you have already received.

If you deliberately mislead over tax credits you can be fined or, in the very worst case, criminally prosecuted.

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What if my circumstances change?

It's crucial that if anything changes that impacts tax credits, you tell the tax credit office as soon as possible, even if you're not obliged to, otherwise you may find you owe them money.

The reason this happens is simple...

Payments are ESTIMATED from last year's earnings, so if things change, and you don't tell them you'll be under or overpaid.

So don't feel you need to wait until the yearly renewal to update your details.

When you must tell the tax office

There are some circumstances, usually where it means your payments will go down, where you are obliged to tell the tax credits office within one month of it happening. If you don't let them know you may be fined £300.

• Change of status. If you move in with a partner, get married or leave the UK for longer than 8 weeks.
  
  
• Drop in working hours. If you stop working or your hours drop below your 16 or 30 hour threshold.
  
  
• Change in childcare. If your childcare costs go down, your child leaves home or you start getting Childcare Vouchers.
  
  

When you should tell the tax office

There are some circumstances where you needn't tell the tax office until renewal, usually where it means your payments will go up. Yet don't wait, as it could also lead to overpayment problems, which means you're earning more money than you should and at the end of the year it'll ask for the cash back. Not good if you've already spent it!

• Job changes. You change your job or your income goes up or down.
  
  
• New children. You’ve had a child (or you’ve fostered or adopted a child).
  
  
• Childcare costs. You start paying for childcare or your childcare costs go up (paying for childcare can mean you're entitled to more cash, see the Childcare Tax Credits guide).
  
  
• Address changes. You move house, bank account or have a new phone number.

Whether you need to notify the tax office or not, when you do inform it, keep notes. It's not unheard of for the tax office to say you didn't get in contact with it when you say you did, so get yourself a tax credits file and write down details of every communication you have with it. Include who you spoke to and when you called.

What to do if you’re overpaid

Overpayments are where you have received too much money in the past which you don't qualify for. While it might sound good, the problem comes when the tax credits department asks for its money back and you've already spent it.

The reputation of tax credits was slaughtered in the early years, due to a crisis of overpayments, and even though the situation has improved over the years, it isn't perfect now and many still have a lack of trust in it.

Overpayments usually happen because...

• You didn't tell the tax office about changes
  
  You normally have one month to tell the tax office of any key changes in your circumstances, though discretion is given if you or a family member were seriously ill.
  
  If you don’t let the office know of any changes within one month you could be asked to pay back any overpayments, so do it as quickly as possible to avoid potential issues.
  
  
• The tax office didn't meet its responsibilities
  
  It either made a mistake in your calculations or took longer than a month to update your records once you informed it of any changes.

Do I have to repay overpayments?

In a nutshell the answer is if it's your fault you do have to repay, but...

If the tax office is at fault, and you've correctly notified it in time of any changes, you won't have to repay.

Of course there may be a problem with evidence, and that can get tricky, but as a general rule, if you did it right and the tax office failed to carry out its responsibilities, the excess cash you were paid specifically because of that error is yours.

Don’t know why you got a overpayment letter?

If you don’t know why you overpaid, in the first instance call up the Tax Credits Helpline on 0845 300 3900 (or 01355 359007 may work too) and ask for an explanation but follow up any issues in writing. If there isn’t a proper reason, you can challenge the decision. If nothing has changed there’s no reason for you to have been overpaid, and by challenging it your situation should be re-looked at.

In your letter explain that you don’t know why it's an overpayment as nothing's changed, and as you'd indicated all the facts you don't believe you should’ve been overpaid.

What if you think it's made a mistake?

If you think the tax office has made a mistake in its calculations you can start a Dispute or Appeal against repaying. Your overpayment will then be placed on hold while your case is investigated (a 'normal' complaint will not hold the overpayment).

• Disputes. Where you gave it the right info but it didn't act on it.
  
  If you disagree that you should pay back an overpayment - for example you informed it that you had a decrease in childcare costs - but it continued to pay you the higher amount anyway, fill in form TC846 or send a letter.
  
  
• Appeal. Where it's asking for money back it shouldn't be
  
  If you disagree with the amount of tax credit you've been given, you can put in an appeal using the WTC/AP form and it'll be looked at by a tribunal. You must fill in the appeal form within a month of being told about the overpayments so act quickly.
  
  An example of an appeal is when you've been correctly paid tax credits for three children, but they’re wrongly saying it's an overpayment as you’ve only got two who are eligible.

Whether it's an appeal or a dispute, give all information you can. Include any evidence and why you don't think you should repay.

If that's not successful you still have the opportunity to make a complaint, go to the adjudicator or even the Parliamentary Ombudsman.

What if I can't afford to pay it back?

Don't panic if you get a letter telling you there's a need to repay some tax credits, even if it says you must do it in a lump sum. Often there's leeway to help those who can't afford it.

Exactly how you'll pay usually depends on which category you fall in.

• If you're still getting tax credits
  
  It's likely your future payments will be reduced so the tax office can recoup the cash you've already had. This is usually 10%-25% of your weekly payment (but could be more for higher earners).
  
  
• If your payments have stopped
  
  If your payments have stopped, whether because you no longer qualify or didn't renew in time, you'll normally get a letter asking you to repay the entire amount within 30 days. A separated couple will usually be asked to pay back half of the money each.
  
  If this happens and you can't afford it, simply contact the tax office and politely inform it. It will usually be possible to spread the repayments over a year. In extreme circumstances you may get even longer, or if the tax office believes you'll never be able to repay, have the entire amount wiped.

Get help on overpayments

Download the detailed PDF guide to overpayments and how to cope with them from the Low Income Tax Reform Group...

For more help on tax credits overpayments use the following sources:

• Help from other MoneySavers: Go to the Benefits & Tax Credits forum board
• Specialist detailed guidance: Go to the Low Incomes Tax Reform Group site
• Tax Credit Forum: For more info go to Tax Credit Casualties
• One on one help: The Citizens Advice Bureau and local law advice centers often have advisors who will be able to help you appeal or dispute unfair overpayment issues

Should I be getting tax credits?

Tax credit payments now spread far and wide. Some families earning up to around £66,000 may qualify for free cash.

How to check

There are two easy online routes to use to check whether you're entitled to tax credits.

• Use the HMRC calculator.
  
  The Government has its own HMRC calculator just to look at tax credits. It's a bit clunky but does the job.
  
  
• Do a five-minute benefit check-up.
  
  For a full check-up including other benefits as well as tax credits, see the Benefit Check-Up guide.

When you can put a claim in

You can claim any time during the year and initial claims can be backdated for up to three months. The easiest way to do it is via the Tax Credit Helpline on 0845 300 3900 (or 01355 359007 may work too).

In your first year you'll be paid from the date of your claim until the end of the tax year (5 April), after that the payments will run every tax year.

There are two different types of tax credit...

Child Tax Credit: In detail

Child Tax Credit is for those who take care of any children eligable for Child Benefit (under the age of 16 or up to 20 if they're in full time education or registered with the Careers Service). Importantly, you don't need to be working.

It's made up of a series of different and separate elements, and the total you get is the sum of all those different parts.

The table shows the maximum amounts per element & the earning level it's available up to. If you earn more you may still be entitled to a portion of the credit.

Working Tax Credit: In detail

It's an oft held criticism that some people are better off on benefits than working. The aim of Working Tax Credit is to give an extra boost to those in work on lower pay, to stop that happening.

The payouts fall into two groups:

• Working over 16 hours a week.
  
  It's only available for those working over 16 hours a week (and less than 30) if you have a child, are disabled, on very low incomes or over 50 and returning to work after a period of unemployment.
  
  
• Working over 30 hours a week.
  
  Here, provided you're over the age of 25 and within the income criteria below, you should qualify.
  

If the household income is £6,420 or below, you'll get the maximum amount listed otherwise the amounts will be reduced depending on your income.

As with Child Tax Credit, it's made up of a series of different and separate elements, and the total you get is the sum of all those different parts.

The table shows the max per element. The more you earn, the less you'll get.

If you are unable to work due to sickness and you have a child or you are on maternity leave you may also be able to claim, check with the Tax Credit Helpline on 0845 300 3900 (or 01355 359007 may work too).

Tax Credit Q&As

The following are some commonly asked tax credit Q&As.

Q. What counts as income for tax credit purposes?

This is any money earned from paid work, self-employed profits or some benefits (such as contribution based JSA or Employment and Support Allowance, Incapacity Benefit (in some cases) or Carers Allowance but not child, housing, council tax or disability benefits).

It also includes any extra income above £300 you (or a partner) receive from a pension, savings, renting out a property, or things such as a trust or interest in the estate of a person who has died.

You don’t need to include money paid for child maintenance or your children’s income and some maternity benefits are partly excluded.

For the self-employed, income is any profit made in the last tax year, as submitted on your tax return. If you haven't finished your tax return yet, make a best guess based on your profit so far. If your business is new and you've had no income from it in the last year, you can leave the income section empty.

Q. What should I do if I think I've been underpaid tax credits?

This is an easier scenario than overpayment. Usually your correct payment will be calculated as soon as you send back your renewal forms, or after 31 July if you don't need to send your review form.

If you think you've been underpaid at any other time do a full check on the HMRC calculator and contact the Tax Office Helpline on 0845 300 3900 (or 01355 359007 may work too) to let it know.

Q. When will I get the payments?

You should start to get payments within a few weeks and you’ll be paid either weekly or every four weeks straight into your bank, building society or Post Office account. If you start to work too few hours your payments will continue for 4 weeks, otherwise you'll no longer get the credit if you're eligibility stops.

Q. What counts as a couple?

If you're married or living with someone, then you must put in a joint, rather than single, application. You can only put in a single claim if you don’t have a partner. If you're a permanently separated couple, then you are counted as a single parent and any payment is made to the child’s main carer.

Q. Who will the payments go to in a couple?

You only get one payment per couple. For Child Tax Credit or the childcare element of Working Tax Credit, payments are made to the parent who mostly looks after the child. Working Tax Credit payments will go to either partner, so you need to decide which account the money is paid into.

Q. Can I claim for childcare costs?

If you're paying for childcare it's important to include these costs in your tax credit claim, as the money available is huge, and it's possible 100,000s of families are missing out.

See the special Childcare Tax Credits guide for more info on what counts as childcare (from babies in swaddling cloth to stubbly six-foot 15 year-olds) and use the free Ready Reckoner calculator to get a rough idea on how much you could get. Remember though, the...

Q. Where can I find out how much credit I am entitled to?

It's easy to do a quick check up using the HMRC calculator or go through a more detailed one via the Benefit Check-up guide.