CPAG in Scotland Tax Credits Project: Factsheet 14Tax Credits OverpaymentsIntroduction IntroductionThis leaflet looks at overpayments of tax credits. There are two types of tax credit; working tax credit for people working 16 or 30 hours a week on a low income, and child tax credit for people with children. You may be entitled to one or both tax credits. An overpayment occurs if you are paid more than you are entitled to. Tax credits are administered by HM Revenue and Customs (referred to as the Revenue in this leaflet). Why do overpayments happen?The tax credits system is an annual one and awards are made for a year (6 April to the following 5 April) or from the date of claim to the following 5 April. Your payments may change during the year if you notify the Revenue of a change in your circumstances. Your actual entitlement for the year is not finalised by the Revenue until after the end of the year, when you will be asked to confirm your income and other circumstances. If you were paid more tax credits than you were entitled to for the year, the extra amount is an overpayment which you may have to repay. Sometimes it becomes clear during the course of the tax year that you have been overpaid. This might happen because your circumstances have changed, or because your tax credits were calculated wrongly from the start of the tax year. This is often called an ‘in-year’ overpayment. The most common reasons for an overpayment are:
The law states that all overpayments of tax credits may be recovered from the claimant. However, it does not state that all overpayments must be recovered, so this allows the Revenue to use discretion in deciding whether to recover an overpayment. The Revenue has devised its own guidance for exercising its discretion, by first looking at who is responsible for the overpayment. The balance of responsibilitiesYou should not have to repay an overpayment if it was caused by a mistake or failure on the part of the Revenue, and you have done everything expected of you. The Revenue’s code of practice on dealing with overpayments, COP26 What happens if we’ve paid you too much tax credit?, sets out what you are expected to do to make sure that your claim is correct, and what you can expect of the Revenue in return. Your responsibilities include:
The Revenue’s responsibilities include:
If you have done all that is expected of you to make sure your claim is correct, but the overpayment arose because the Revenue failed to meet one of its responsibilities, the overpayment will not be recovered. Where you and the Revenue have both failed to meet one or more responsibilities, the Revenue will look at the circumstances and may write off parts of an overpayment. If there are exceptional circumstances which meant that you could not meet your responsibilities at the time, you should notify the Revenue as soon as possible. The overpayment will not be recovered if the Revenue accepts that you had strong reasons such as serious illness, bereavement, or flooding of your home. Overpayments can arise even though you and the Revenue have both complied fully. For example, the Revenue asks you to report certain changes within one month, and then allows itself one month to act on a change. This could lead to an overpayment of two months. This may be recovered, but there is always discretion not to do so. COP26 asks you to contact the Revenue again if you have not had a new award notice within one month of reporting a change. However, elsewhere the Revenue has clearly stated that if it fails to act within 30 days, any resulting overpayment will not be recovered. Overpayments due to a change in single/couple statusIf you claim tax credits as a single person and become part of a couple, you must report this change to the Revenue. Your single claim ends and you must make a new claim as a couple. If you report this change late, an overpayment arises and there is a risk of a penalty. The Revenue can reduce the overpayment by the amount you would have been entitled to if you had reported the change promptly. This process, known as ‘offsetting’ also applies if you have been claiming as a couple and become single. You should also request offsetting in other situations where an overpayment has arisen because your claim has ended, such as if your partner went abroad for more than the permitted period. You should write to or phone the Tax Credits Helpline to ask for overpayments to be reduced in this way. Disputing overpaymentsIf you do not agree that you should have to repay the overpayment, you can dispute recovery at any time on form TC846 (available to download from the Revenue’s website, or it can be requested via the Helpline). The form asks you to explain why you think the overpayment was caused by a mistake or wrong advice on the part of the Revenue, and whether you contacted the Revenue about any errors. Make sure you explain fully not only why you think the Revenue caused the overpayment, but also how you met your responsibilities as set out in COP26. The Revenue will stop recovering the overpayment while it considers your request. You can also ask the Revenue not to recover some or all of the overpayment on hardship grounds (see below), or to use its discretion in other exceptional circumstances. There is no right of appeal to an independent tribunal against a decision by the Revenue to recover an overpayment from you. However, you can appeal to a tribunal if you disagree with the decision on entitlement ie, if you think that you have not been overpaid, or you think that the amount of the overpayment is incorrect. You can do this by appealing against the new decision on your entitlement within 30 days (the time limit can be extended by up to a year). You can get an appeal form inside leaflet WTC/AP ‘How to appeal against a tax credits decision or award’ by contacting the Revenue (see below). If you appeal against an entitlement decision which led to an overpayment, recovery action should be suspended pending the outcome of the appeal. If the Revenue refuses to reduce or write off an overpayment, you can make a complaint by writing to the Tax Credit Office. If you are unhappy with the response, you should ask for your complaint to be looked at again. If you are still not satisfied, you can ask the Adjudicator’s Office to investigate your complaint and finally you can ask your MP to refer your case to the Parliamentary Ombudsman. Please see our leaflet Tax credits and complaints for further information. In some circumstances, you can challenge a Revenue decision through judicial review. You will need to consult a solicitor about this. Please see our leaflet Tax credits and judicial review for further information. The Revenue does not commit to suspending recovery of the overpayment while you are pursuing a complaint, but has the discretion to do so. RecoveryIf you accept that the overpayment arose because you failed to meet one or more of your responsibilities, or your dispute has been considered and decided against you, the Revenue will ask you to repay the overpayment. If you are still getting tax credits in the same household as that in which the overpayment arose, the Revenue will normally automatically recover an overpayment from you by reducing your ongoing award by:
If you cannot afford the reduction in payments from an ongoing award at these maximum limits, you should contact the Revenue to work out a reasonable amount. If you are no longer getting tax credits, or you are in a different household from the one in which the overpayment arose, you will be asked to repay an overpayment directly to the Revenue within 30 days. If you need longer, you can ask to pay in instalments. The Revenue will usually want you to clear the debt within 12 months but may accept an offer to repay within three years if what you say about your disposable income sounds reasonable. If you are already repaying an overpayment of social security benefits, the Revenue has said it will look at suspending recovery in this case. If you were overpaid when you claimed as a couple and are no longer together, you are both jointly liable to repay the overpayment directly. The Revenue will only ask each person to repay 50% of the overpayment. You can ask to repay different amounts separately, depending on the circumstances. If you have more than one overpayment from a previous claim as well as on your current claim, you should not have to make direct repayments at the same time as having deductions from your ongoing award. This applies unless you are entitled to the family element only. HardshipIf you have financial difficulties, you can ask the Revenue not to recover some or all of the overpayment on the grounds of hardship. You can also ask for a lower rate of deduction, although this will mean it will take you longer to repay the overpayment. You should send in a letter detailing your family circumstances and any extra living costs relating to disabilities or chronic illness. Include a financial statement showing any other debts and how repaying an overpayment is making it difficult for you to pay essential living expenses such as rent, gas or electricity. If you have a mental health problem and pursuing recovery of an overpayment is likely to have a detrimental effect or cause you unreasonable distress, the Revenue’s guidance states that the overpayment may be written off. You will need a letter from a health care professional or mental health social worker explaining your condition. In most cases the evidence provided will be sufficient to relieve you from responsibility for payment. Effect of overpayments on housing benefit and council tax benefit (HB/CTB) Tactics
Further information and adviceCPAG in Scotland Tax Credits Project summary webpages Child
Poverty Action Group in Scotland Email: advice@cpagscotland.org.uk Website: www.cpag.org.uk
CPAG in Scotland’s advice line is only for advisers. If you are having problems with your own tax credit or benefit claim and are in need of advice you should contact your citizens advice bureau or other local welfare rights service. HM Revenue and Customs Website: www.hmrc.gov.uk Revenue complaints Adjudicator’s Office Parliamentary Ombudsman © Child Poverty Action Group, April 2010 Child Poverty Action Group is a charity registered in England and Wales (registration number 294841) and in Scotland (registration number SC039339). Company limited by guarantee registered in England (registration number 1993854). Registered office: 94 White Lion Street, London N1 9PF CPAG in Scotland’s Tax Credit Project is funded by the Scottish Government. |
CPAG
publishes the 
Top of Page
Send Comments to CPAG