This factsheet is a basic introduction to tax credits overpayments. You can find out more in Disability Alliance's Disability Rights Handbook, available to buy at www.disabilityalliance.org/drh35.htm.
All our publications are available at www.disabilityalliance.org/shop.htm. You can also place an order by contacting Disability Alliance on 020 7247 8776 (this is not an advice line) or by fax on 020 7247 8765. All our factsheets are available at www.disabilityalliance.org/fact.htm.
The amount of tax credit paid in a particular year is usually an estimated amount based on your previous tax year's income and adjusted finally, at the end of the tax year, once your income for the current tax year is known.
Your award can be adjusted in-year when changes occur and this can reduce or eliminate an overpayment. However, it is only when your entitlement is finalised at the end of the year that the final overpayment,if any, is known.
You must report the following in year changes to HM Revenue and Customs (HMRC) within one month of the change or you may pay a penalty:
In addition to these we would suggest that you contact the HMRC to inform them of other changes in circumstances such as changes in income or earnings.
As long as your income in the current year does not rise by more than £25,000 (£10,000 from April 2011) your tax credit award will not be affected. Reporting a changes in circumstances early should ensure that you are not paid too much when HMRC work out what to pay you for the following year.
There are two situations where HMRC may allow you to repay the overpayment over a longer time period than normal (possibly using top-up payments to extend the payback period), or may decide not to seek to recover the overpayment at all:
The Revenue's approach to overpayments is outlined in COP26 - the Code of Practice on overpayments.
The COP26 lists factors, which can be taken into account when considering hardship, and includes claimants with a disability whose health could be affected by having to pay back the debt.
Other factors which can be taken into account include income and essential living expenses, your savings, outgoings such as rent or mortgage repayments, whether you have a child under five-years-old, and any other factors that may be relevant.
If you think your Tax Credit has been wrongly calculated you can appeal. For more information on appealing see our Factsheet F34 - if you disagree with your tax credits decision available at www.disabilityalliance.org/f34.htm.
If your tax credit award changes this may affect your other benefits such as housing or council tax benefit. If you are on these benefits, seek further advice.
The Adjudicator's Office - www.adjudicatorsoffice.gov.uk - handles complaints about Tax Credit Office mistakes, delays, poor or misleading advice, inappropriate staff behaviour and the use of discretion.
You can get help with tax credits overpayments at your local advice centre, such as a citizen's advice bureau. You can get more information about getting personal advice from our Factsheet F15 - Finding a local advice centre, available at www.disabilityalliance.org/f15.htm.
Citizen's advice have produced a guide to overpayments available at http://tinyurl.com/3ao2tk2.
The Low Incomes Tax Reform Group (LITRG) has also written a guide called Help with tax credit overpayments and which is free to download from the LITRG website at www.litrg.org.uk.
HMRC have produced a guide, aimed at advisers, called How HM Revenue & Customs handle tax credits overpayments. It is available at http://tinyurl.com/374j3ly.
www.disabilityalliance.org - 12 August 2010
