Written by Advicenow
Repaying the overpayment
Do I have to pay the overpayment all at once?
No. The first letter that you receive might ask for all the money back at once. But you do not have to do this. Have a look at the box below to find out the different ways you can pay the money back.
Remember, if you have sent in a mandatory reconsideration request or appeal HMRC should not ask you for the money back until they have replied. If you are only disputing (and not appealing) the overpayment, or have sent in a complaint, they will keep asking you to repay the money.
If HMRC are asking you to pay it back straight away
The first letter you normally receive from HMRC is called a ‘Notice to pay’ (TC610). It normally gives you 42 days to pay but will tell you to contact HMRC if you need to pay over a longer period. These letters are often difficult to understand at the best of times, let alone when you're worried and upset.
It is important that you take some action when you receive this letter.
The options you have to repay are:
- The full amount in 42 days – but most people can't afford this.
- Over a longer period which you can afford.
If you want to pay over a longer period, you need to work out what you can afford each month and ask HMRC if they will accept it. Phone the number on your overpayment letter. HMRC might ask for details of all of your income and what you need to spend it on. They will then work out how much they will accept. Most people underestimate the amounts they spend on things - try not to underestimate what you spend on vital things like food, rent, heating, clothes and shoes for the children, travel to work, medicines and dentistry, TV license.
If you are already paying back an overpayment from your tax credits, contact HMRC using the number on the letter and ask them to stop asking you to pay the overpayment directly until you have finished paying back the one from your current award.
If you are on long term benefits and you have no spare money and your situation is unlikely to change, then you can ask HMRC to suspend recovery of the overpayment or remit the overpayment. This means that HMRC will decide that they will not ask you to pay any money back at the moment. They will only do this if they don’t think your income is likely to increase in the future. This does not happen in many cases and HMRC reserve the right to ask you for the money in the future if your circumstances change so that you can make some repayment. You will need to show them that you have no money left after paying for the things that you really need.
Remember, you should not feel like you have to pay back more than you can afford. For more information see I can't afford it. You may be able to get help from an adviser - see How to find an adviser. They could speak to HMRC for you and explain how much you can afford to repay each month.
If you do not contact HMRC and offer to repay the overpayment each month, HMRC can take action to recover the money. Remember, they should only ask you to repay what is affordable based on your income and what you have to spend your money on. If you cannot afford to make the payments they ask see I can't afford it.
If you continue to ignore letters, they may take more serious action such as taking you to court or coming to your home and taking your belongings. If you receive a letter that says HMRC are thinking about doing this, you should get advice as soon as possible. See How to find an adviser.
I received a ‘notice to pay’ letter from HMRC but ignored it. What will happen next?
If you do not contact HMRC after receiving the first notice to pay letter, your debt will be passed to a private debt collection agency.
You can still arrange to repay the debt with them, but you will need to speak to them directly rather than calling HMRC. Their phone number should be on any letter you receive. If you need to repay over a longer period, they may ask you about your income and any amounts you spend each month.
If you are unable to pay important bills like gas or electric or your rent or mortgage, you should phone the debt collection agency and tell them. They should transfer the case back to HMRC to consider whether they can accept a lower monthly payment, take the money back, or remit the debt.
If you do not contact the debt collection agency, the debt will eventually be passed back to HMRC, and they may take further action such as taking your things or taking you to court.
If you are paying back an overpayment and get housing benefit or council tax reduction you should tell your council that your income has gone down. You may be entitled to more help with your rent or council tax.
HMRC are taking the money back from my tax credits: how much can they take?
If HMRC are taking money from your tax credits to pay back an overpayment, then the law says that they can only take certain amounts depending on your situation.
If you receive maximum tax credits (for example because you receive Income Support or Income Based Jobseeker’s Allowance) they can only reduce your payments by up to 10%.
If you receive less than the maximum tax credits, but more than the basic amount (which is £545) then the most they can reduce your payments by is 25%. If your household income is over £20,000, HMRC can take 50%. When deciding if your income is over £20,000, HMRC will use the latest income figure you have given them.
If you are receiving just the basic amount, they can stop your tax credits altogether until the overpayment is paid back.
If you report a change of circumstance, HMRC will look at your award again. If the change means you are entitled to less tax credits for the year and if you have already received that amount, HMRC will stop your payments. This is so you do not make your overpayment bigger.