Citizens Advice (CA) is pressing for the Government to write off 1 billion of outstanding Tax Credit overpayments from the scheme's first two years.

Overpayments occur when someone is given more money than they were eligible for and the tax office asks for it back.

The consumer charity wants to encourage as many people as possible to dispute the fact the Government is asking for money back from the April 2003 to April 2005 period, which they can either do directly or get help via their local Citizens Advice.

It also wants people to ask their MP to sign Early Day Motion 1112 on the subject in Parliament, tabled earlier this year, which currently has 100 signatures.

The CA plan is to wipe out claims:

  • that have become so complicated the cause of the overpayment is unclear.
  • where the claimant is on a low income so the tax credit debt is causing hardship.
  • where the Government wants the money back due of an admin error because the end of year renewal form was not sent back on time.

The CA says the administrative cost of chasing and collecting the overpayments would cost around the same as the outstanding debt of around 1 billion, so the Government has nothing to gain from chasing the payments. Overpayments arising from fraud are not included.

Paying the money back

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.

The consumer charity estimates that up to 1.5 million families are still paying back, or in a dispute over, 2003-05 overpayments. More details can be found on its website.

Overpayments from current years can also be challenged by concerned consumers. It's expected one million people were overpaid in the financial year 2009/10 and are now being asked to pay the money back.

Challenge the overpayment

There are two main reasons under normal circumstances to challenge overpayments. They are:

  • On grounds of an HMRC mistake. A dispute can be made on form TC846 or by letter and should give all information on why the debt should be cleared, including any evidence. The overpayment will then be placed on hold while the case is investigated.

  • Tax office responsibilities: to accurately record any information given to it and act on the information within 30 days of being reported, to calculate and pay the correct amount, to give correct information and advice.

    Consumer responsibilities: to tell the tax office of any changes in circumstances in the correct time.

  • Challenging an overpayment on grounds of hardship. Even if the tax office has met all its responsibilities a consumer can still challenge an overpayment if it leads to hardship and causes them to be unable to afford essential living expenses. To dispute they should write to the tax office outlining their circumstances and explaining why they cannot afford the repayment and how they are struggling to meet essential living costs (including evidence that their situation is unlikely to improve).

  • The letter should include details of any payments made so far, any children in the household, any illness or disability in the family and an income and expenditure sheet detailing their finances. All letters should be sent to HMRC, Overpayments Dispute Team, Tax Credit Office, Preston, PR1 0SB.

Further reading/Key links

Full Tax Credit guide: Tax Credit Overpayments
What to do & where to get help: Debt Problems