A survival guide to dealing with tax credit overpayments

If you have received a letter saying you've been overpaid tax credits and demanding repayment you are likely to be confused, worried, and stressed. You may be angry about the failures of the system.

This guide is for you if you have been told that you have a tax credit overpayment that you have to pay back.

December 2016

There are two tax credits, working tax credit and child tax credit. In this guide we use the term ‘tax credit’ or ‘tax credits’ to refer to either or both of them. A tax credit overpayment happens when you have received more tax credits than you should have in a tax year. (A tax year runs from April 6th in one year to April 5th of the next year.) After the end of every tax year, HMRC check to see if they have paid you the right amount for the year just ended. If they have paid you more than they think you should have had, you will have a tax credit overpayment.

You may feel panicked by the whole situation, but try not to worry. By following the steps in this guide, we can help you through it. If you are unsure, or would like someone to check your overpayment or help you with an appeal or dispute then get advice. See How to find an adviser.

It sometimes isn’t easy to tell whether HMRC think you have been overpaid. You might receive a letter from HMRC telling you that you have been overpaid. It might also tell you how much the overpayment is and that you must pay it back straight away. Or, you might not receive a letter and instead, your tax credit payments may go down. If HMRC think you have been overpaid, they will say so on your tax credit award notice. These notices are the pages that HMRC send you after your first claim and again every time you report a change to them. They are normally 4-8 pages long and on the front have your name, address and the amount of your tax credits. Overpayments are normally shown in Part 3 next to where it says ‘amount due from you’.

If you are still not sure if you have been overpaid, don’t worry. The notices HMRC send are sometimes very hard to understand. Take your notice along to an adviser (see How to find an adviser) or contact HMRC’s tax credit helpline on 0345 300 3900 (textphone: 0345 300 3909).

There are many reasons why overpayments occur. It surprises a lot of people to find out that you can have a tax credit overpayment even if you do everything correctly.

Tax credits are designed to pay out first and double check the amount later. This means it is not certain that what you are getting is right. Remember those forms you receive every summer? Once the tax year ends in April, HMRC send you those forms to ask you to give them your actual income and confirm your details. Only then can they tell you how much you were really entitled to for the tax year that has just finished.

Sometimes you may have been overpaid even though your income or circumstances haven’t changed. Overpayments like this can occur when you don’t return the forms (called ‘renewal’ papers) to HMRC.

Look at your award notices

Look back at your award notices and check the details on them. If any of them are wrong, this might help explain why you were overpaid. In particular, make sure the following are correct:

•      Your National Insurance number(s) - if you are making a joint claim, there will be two numbers

•      The number of hours worked

•      Your income - this year and last year

•      Whether you are part of a couple - if you are then you should be making a joint claim. This means that both sets of details should be on the award notice.

•      The number of children you have and whether they qualify for the disability rate or severe disability rate of child tax credit

•      Whether you are claiming income-based jobseeker’s allowance, income-related employment and support allowance, income support or pension contribution.

•        Whether you are disabled and qualify for the disability element. (Disability for tax credits is different to disability for other things. It is important to check that you meet the tax credit disability conditions.)

•      Whether you or a child claim Disability Living Allowance at the higher care rate, the enhanced daily living component of the Personal Independence Payment, or the Armed Forces Independence Payment.

•      Whether you claim the highest rate of Attendance Allowance.

•      Childcare costs

•      The payments listed at the end match what you were actually paid (check against your bank statements)

If you have checked all these details and think HMRC have got them right, look at the ‘Common reasons’ section. Does one of them apply to you?

Common reasons

Here we explain the most common reasons for overpayments, as well as how to find out if this is the cause of your overpayment.

In circumstances where you still don’t know the cause of your overpayment you can:

1. Get advice. See How to find an adviser - tax credits. This is often the best action to take if you don’t know why you have an overpayment so that you do not miss any important time limits.

2. Write to HMRC and ask them for an explanation. See Further help - tax credits  for the address. However, it often takes a long time to get an explanation and when it does arrive, it’s often very hard to understand or wrong. You might also miss important appeal and dispute time limits while you are waiting. Asking for an explanation doesn’t alter the overpayment and you will need to speak to HMRC about paying it back in the meantime. See Repaying the overpayment. If HMRC are reducing your tax credits to collect the overpayment, they will keep doing this even though you have asked for an explanation.

3. Send both an appeal and a dispute to HMRC. This way you don’t miss any important time limits. If you do this, HMRC won’t ask for the money back until they have answered your appeal. For information see How to appeal. For information about the dispute process see I don’t think I should pay the money back: the dispute process.

Once you know that HMRC think that you have been overpaid you have different options depending on whether they are asking you to pay the money back straight away or taking it from your tax credits.

If HMRC have sent you a letter asking for the money back straight away, look at A below. If HMRC are taking money back from your tax credits, have a look at B.

It can be difficult to work out whether to appeal or dispute a decision. Which you should choose depends on whether you think the HMRC’s decision is wrong or unfair.

If you think the HMRC are wrong about the amount of tax credits you should have received (not that their decision was unfair), you should appeal the decision. The first step of this is to ask the HMRC to look at the decision again. This is called a ‘mandatory reconsideration’. If they do not change the decision, or do but you still don’t think it is right, then you can appeal the decision. This is when a panel of three people who are independent and do not work for HMRC look at the decision. For information about how to do this see How to appeal.

If you agree that you have received more tax credits than you should have but you don’t think you should have to pay it back, you should dispute the decision. The dispute process is how you ask HMRC to look at this kind of decision again. Disputes are decided by HMRC; they don’t go to an independent tribunal. For information about how to do this see I don’t think I should pay the money back: the dispute process.

Doing both

Sometimes you might want to send a letter asking for a mandatory reconsideration and a dispute letter at the same time. You may want to do this if you are not sure why you have been overpaid. If you don’t know the cause or aren’t sure, then you can’t be certain which process is the right one for you to use. So to protect yourself you can do both. It’s also possible that the overpayment has two causes.

Appeals and disputes: the differences

What can I do?

I don’t think I was paid too much.

You can appeal. See How to appeal. If you have missed the appeal time limits you might be able to make an 'official error request'. For more information see Official error.

I agree I was paid too much but I don't think I should have to pay it back.

You can send a dispute letter. See I don’t think I should pay the money back: the dispute process.

I agree I was paid too much, but not as much as HMRC say.

You can send an appeal about the amount that HMRC say you owe that you don’t agree with. See How to Appeal. If you have overpayments from other years that you are not appealing then you should either start paying them back (see Repaying the overpayment) or send a dispute letter if you don’t think you should have to pay them back. See I don’t think I should pay the money back: the dispute process.

I was overpaid because I was late telling HMRC that I had become part of a couple or stopped being part of a couple.

If you are overpaid because you were late telling HMRC you had become part of a couple or stopped being part of a couple or your partner had died, you may be able to have the overpayment reduced. When you tell HMRC about a change like this, your claim ends and you have to make a new claim as a single person or as part of a new couple. If you report the change late, this usually results in an overpayment on your old claim. Many people then get a surprise when they find out that they cannot backdate their new claim for more than 1 month. However, the rules changed on 18th January 2010 and now HMRC will reduce any overpayment on an old claim by the amount you would have received if you had made your new claim on time. This is called ‘notional entitlement’. They will do this in most cases, except where they believe someone was deliberately dishonest.

If you think this might apply to you, contact the HMRC tax credit helpline on 0345 300 3900 (Textphone 0345 300 3909) and ask for your case to be passed to the ‘notional entitlement’ team (sometimes also called ‘notional offsetting team’). They will calculate whether your overpayment should be reduced. If you are not sure whether this applies to you, get help from an adviser. See How to find an adviser - tax credits.

I don’t understand this at all and want HMRC to explain it to me

Follow the steps explained at How to Appeal and I don’t think I should pay the money back: the dispute process and send two letters to HMRC. This way you won't miss any deadlines. You can also get help from an adviser. See How to find an adviser - tax credits.

Time limits for appeals

Time limits for disputes

What if I miss the 3 month time limit?

HMRC may still look at your dispute if you have a good reason for missing the time limit. For example, if you received wrong advice from the HMRC’s own helpline or if you have been seriously ill. If you think you have a good reason, you should include it at the start of your dispute letter.

What if HMRC refuse to accept my dispute?

If HMRC say they will not look at your case because you are outside the 3 month time limit and you think that you were within it or you had a good reason for missing it you should follow the guidance about How to complain - tax credits. (You still need to speak to HMRC about repaying the money even if you decide to make a complaint.) In your complaint letter you should make it clear why you think you did not miss the deadline.

Get Advice

Tax credits are very complicated and most claimants find it difficult to understand overpayments. If you are unsure, or would like someone to check your overpayment or help you with an appeal or dispute then try and get advice. See How to find an adviser - tax credits.

Speak to your MP

Your local MP might be able to help you with your overpayment. This can be especially helpful in cases where you are not getting any response from HMRC. See Further help - tax credits  for information about how to contact them.

Be aware! HMRC will keep asking for the money

Normally, HMRC will not stop asking you to pay back your overpayment when you dispute a decision or complain. They will only stop when you send in an appeal. You might need to start making payments while you go through the complaints system. For information on how to do this see Repaying the overpayment.

The appeal process has two steps. The first step is to send a mandatory reconsideration request to HMRC, who will then look at their decision again. If you still disagree with the decision, the second step is to send an appeal form to HM Courts &Tribunals Service.

You can ask for a mandatory reconsideration by either writing a letter or using the form on leaflet WTC/AP. 

Whichever method you choose, make sure that your request includes:

• Your name (and, if you have a partner, their name)
• Your date of birth (and your partner’s)
• Your national insurance number (and your partner’s)
• The date of the decision you wish to appeal
• A brief explanation of what you think they have got wrong.

Keep a copy of your letter or the completed form, and make a note of the date you sent it. If you can, you should send all letters to HMRC by recorded delivery and keep hold of the postal receipt. If you have used recorded delivery you can check the Royal Mail website to see if HMRC have signed for the letter and print a copy of the receipt. If it has been not been signed for, it is a good idea to send it again.

See Further help - tax credits for details of where you should send your mandatory reconsideration request to.

When should I hear from them?

Don’t worry if you don’t hear anything for a while. If you have not received anything after 6 weeks, you should complain. See How to complain - tax credits.

If you have still not heard anything from HMRC after 6 months, or if you are not receiving any payments and it is causing you financial difficulties, you should contact an adviser to see if your case can be sent directly to a tribunal. Tribunals are not part of HMRC; they are independent. See How to find an adviser - tax credits.

As soon as HMRC receive your appeal form or letter, they must stop asking you for the money back. They should not ask you for the money again until they have made a decision about your mandatory reconsideration request. If you send an appeal to the Tribunals service, they should stop asking you for the money again.

Sometimes you may receive a demand letter asking for the money back from another part of HMRC called Debt Management or from a private debt collection agency working for HMRC. This is normally because the Tax Credit Office hasn’t told them about your appeal. If this happens you should write to or phone Debt Management or the private debt collection agency. Send them a copy of your mandatory reconsideration request letter and tell them that they should not try and recover any overpayment that is under mandatory reconsideration or appeal.

What if HMRC ask for more evidence ?

Sometimes HMRC may write to you after you have sent a mandatory reconsideration request asking you for more evidence. 

HMRC might also telephone you to discuss your appeal and tell you that your appeal does not have much chance of success. Speak to an adviser first before deciding to give up on your appeal (see How to find an adviser). If you cannot speak to an adviser, don’t withdraw your appeal. You do not have to submit extra evidence, although if you do have any further information it is a good idea to send it to HMRC.

What do I do if HMRC do not change their decision?

You should receive two copies of a mandatory reconsideration decision notice from HMRC. This should tell you if they agree with you and have changed the decision, or if they haven’t.

If they haven’t changed their decision (or have but you still don’t think it is correct), you can appeal. You do this by using form SSCS5. 

You will need to send a copy of the mandatory reconsideration decision notice with your appeal form.

You need to send this to HM Courts &Tribunals Service (who will organise the appeal) within 1 calendar month of the date on your decision notice from HMRC. If it is late, you need to give reasons why it is late.

Sometimes, HMRC may only partly agree with you. They may agree that you weren't overpaid by as much as they initially said, but still think you've been overpaid by a smaller amount. If you think this decision is wrong, appeal it.

What if I miss the time limits for appealing?

The time limits for appeals are explained on Appeal or dispute. If you miss even the 13 month time limit, you may be able to have your award changed by making an ‘official error request’. See Official error. This is helpful if your award is incorrect. 

For a mistake to count as an official error, you need to show three things:

1. That HMRC made a mistake which led to the incorrect award
2. Changing the award would be in your favour
3. The mistake was mostly HMRC’s fault.

An official error request is different from an appeal or dispute. If you are within the time limit for an appeal then it is best to appeal instead of using the official error route. But if you have missed the time limit (including the one for a late appeal), then you might be able to make a request for them to look at whether an ‘official error’ has been made.

How do I make an official error request?

You should send a letter explaining why you think the mistake is an ‘official error’ and asking HMRC to stop recovering your overpayment until they make a decision, to the Dispute team. If you aren't sure of their address, phone the Tax Credit Helpline and ask.

When you send your letter it is best to send it recorded delivery. If HMRC carry on asking for the money back or taking it from your tax credits, have a look at Repaying the overpayment

How long have I got?

You have five years from the end of the tax year in which the overpayment occurred to ask HMRC to change your incorrect award.

What if HMRC don’t change my award?

If HMRC refuse to change your award after you have sent an official error letter, you should speak to an adviser. The law is not clear about whether you have a right to appeal this decision and it may need a Tribunal to decide. See How to find an adviser on page 34.

What if HMRC don’t change my award?

If HMRC refuse to change your award after you have sent an official error letter, you normally cannot appeal. You should speak to an adviser if this happens.The law is not clear about whether you have a right to appeal this decision and it may need a Tribunal to decide. See How to find an adviser - tax credits.

If the overpayment is correct, you can ask HMRC not to take the money back from you if you think it was their mistake that caused the overpayment. The process for doing this is called a ‘dispute’. You can do this even if you can’t appeal. You can also use the dispute process at the same time as an appeal if you are not sure why you have an overpayment.

You normally need to dispute an overpayment within 3 months. For more information about time limits for disputes see Appeals and disputes.

The dispute process is explained in the HMRC leaflet COP 26 (you can find it here: Tax credits: if you think a decision is wrong (WTC/AP) or phone the tax credit helpline on 0345 300 3900 (Textphone 0345 300 3909) and ask for a copy).

There are two ways to lodge a dispute. You can use a form which you can find here: Tax credits: overpayment (TC846) or you can write a letter. See How to write a dispute letter.

 HMRC will keep asking you for the money or taking it from your tax credits even if you dispute their decision. If this causes you hardship, see I can't afford it.

How do HMRC decide if I have to pay the money back?

When your dispute form or letter is received, HMRC will decide if you have to pay the money back. They can make one of three different decisions:

1. They can decide you have to pay all of the money back.
2. They can decide you have to pay some of the money back.
3. They can decide that you do not have to pay any of the money back.

HMRC make their decision by checking if you have done certain things. HMRC call these your ‘responsibilities’. They also check to see if they have done what they were supposed to do. Have a look at the chart below to see a full list of the things you and HMRC have to do.

• If you have done everything you were supposed to and HMRC have not, you will not have to pay back the money.

• If you have not done everything you were supposed to, but HMRC have, then you will have to pay back the money. If there was a good reason why you could not meet your responsibilities, HMRC might not ask for the money back. This is called ‘exceptional circumstances’. You should write a letter to HMRC telling them the reasons why you could not meet your responsibilities.

• If you have not done everything you were supposed to, but neither did HMRC, then you may only have to pay some of the money back.

Evidence

Very often, HMRC say that you have to pay money back because they cannot find any proof that you met your responsibilities. For example, they may say that they cannot find any evidence that you told them about changes to your situation. When you write your dispute letter you should try to remember when it was that you contacted HMRC. If you cannot remember, you can ask HMRC for a copy of your telephone calls and their notes about you. You can do this by writing to:

TCO SAR Team
Group 7
Area F
Floor 1 St Marks House
St Marys Street
Preston
Lancashire
PR1 4AT

They do not always have copies of everything, but it may help your dispute. For example, HMRC did not record all telephone calls from January 2003 to September 2004. If you think you told them about something during this time you should give as much information as you can remember. HMRC should accept what you say unless they have any proof that you are wrong. 

Do not wait to get copies of their notes about you before you send a dispute. This is because HMRC will not stop asking you for the money and you may miss the 3 month dispute time limit.

 How to write a dispute letter

I have sent a letter asking HMRC not to take the money back, but they say I still have to pay it back. What can I do?

It can be so frustrating and upsetting to be told you still have to pay the money back, especially if you have waited a long time for a reply. But try not to worry, all is not lost yet.

The first thing to do is read the letter you’ve had from HMRC. The letter should contain some important information:

• A phone number for the person who made the decision
• The name of the person who made the decision
• A reason why HMRC think you should still pay the money back.

Sometimes, letters are missing some of this information. If yours is, you can complain (see How to complain) and follow the steps below.

The reasons that HMRC give are often confusing and hard to understand. Sometimes they even turn out to be wrong. Once you have read the reason, these are your options:

1. If you agree with the reason they give, and think that the decision is correct, HMRC will want the money to be paid back. If you are still getting tax credits on the same claim, they will automatically reduce your payments. If HMRC have asked you for the money directly in the past, you should contact HMRC to arrange how to repay the money (see Repaying the overpayment). You should not ignore the overpayment as it could end up going to court or the HMRC may try and take your things.
2. If you do not agree with the reason they give, then have a look at the section on Second disputes. This is very important if you did not know the reason for your overpayment when you sent your first dispute. You can now write a longer second dispute and explain why you think their decision is wrong. They will continue to ask you for the money or take it from your current tax credits claim while you do this. You will need to send this second dispute within 30 days of the decision about the first dispute. 
3. If you are unhappy with how HMRC have responded to you, then you can make a complaint (see How to complain). You can send a complaint as well as a second dispute if you want to.

HMRC say that they will only look at another dispute about the same overpayment if there is new evidence. You must ask them to look at the decision again within 30 days of the date on the decision about the first dispute.

The reason for sending another dispute is to tell HMRC why you do not agree with their reasons. For example, if HMRC write to you and say that you didn't tell them about a change in your circumstances, your second dispute should tell HMRC when you think you told them about the change and ask them to listen to the phone call/find a copy of the letter.

Follow the guidance showing you how to write a dispute letter on How to dispute the overpayment. Between step 3 and 4 you should tell HMRC why you do not agree with their decision. If you have any new evidence, tell HMRC about it.

If you have no new evidence, but believe that HMRC have ignored evidence that you have already sent them, you should send a second dispute as well as a complaint. You should tell them what evidence they have ignored and why you think it is important. Explain that they should treat it as new evidence because it has not been looked at before.

There is no limit on the number of times you can send a dispute but HMRC will not stop asking for the money while they make their decision. However, normally HMRC will not change the decision unless you provide new evidence or you can show that they did not consider some evidence that they already had.

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 you have been asked to pay the money back straight away

If you have been asked to pay the money back straight away or have made a repayment plan that you can no longer afford, contact HMRC or the debt collection agency dealing with your debt immediately if you cannot meet your essential living expenses like food, gas, electricity, water, and rent. You should also contact HMRC if you are a pensioner, are claiming sickness benefits, or are unemployed, and are unlikely to be able to increase your income in the future.

You can ask HMRC to:

• Stop taking the money from you for the moment (if they do this they will reconsider this every few months). They are more likely to do this if they think your circumstances may improve.
• Accept smaller payments over a longer period of time. HMRC may ask you some details about your income and expenditure. If you think they are asking you to pay too much, get help from an adviser (see How to find an adviser).They may be able to speak to HMRC for you.

• 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 may want to get help from an adviser (see How to find an adviser).

You may want to complain if:

• HMRC have not dealt with your tax credit claim properly.
• You have not been treated properly by HMRC staff.
• You have been given wrong advice by HMRC.
• You are not happy with a dispute decision, but have no new evidence.
• You have sent a dispute or appeal but have not received a reply for over 3 months.
• HMRC haven’t explained the reasons for your overpayment properly.

HMRC can accept complaints over the telephone if you ring the tax credit helpline. This might be useful if your complaint is about the helpline. Normally it is best to write a letter. You should set out your reasons for complaining and what it is you would like HMRC to do. Send your complaint letter to:

Complaints Team

Tax Credit Office

Preston

PR1 4AT

I have received a response to my complaint letter but I am still not happy

You can take your complaint to a higher level. This is called a ‘Tier 2 Complaint’. To do this you should write a new complaint letter telling HMRC why you are not happy with their first response. Send this second complaint letter to the same address.

If you are unhappy with the response you receive to yoursecond complaint letter then you can ask the Adjudicator to look at your case. See Further help for information about how to contact the Adjudicator.

If you are not happy with the Adjudicator’s response, you will need to ask your MP to ask the Parliamentary and Health Service Ombudsman to look at your complaint.

It is important to remember that if your complaint is about an overpayment, HMRC will still keep asking you to repay the money while you are going through the complaints process. You should make sure you speak to the Debt Management part of HMRC or to the debt collection company dealing with your overpayment as soon as possible. If you cannot afford to pay anything, you should still speak to them and explain your situation. For more information see Repaying the overpayment.

I have received a response to my complaint letter but I am still not happy

You can take your complaint to a higher level. This is called a ‘Tier 2 Complaint’. To do this you should write a new complaint letter telling HMRC why you are not happy with their first response. Send this second complaint letter to the same address.

If you are unhappy with the response you receive to your second complaint letter then you can ask the Adjudicator to look at your case. See Useful contacts for information about how to contact the Adjudicator.

If you are not happy with the Adjudicator’s response, you will need to ask your MP to ask the Parliamentary and Health Service Ombudsman to look at your complaint.

It is important to remember that if your complaint is about an overpayment, HMRC will still keep asking you to repay the money while you are going through the complaints process. You should make sure you speak to the Debt Management part of HMRC to agree some payment of the debt otherwise they will pass the debt to a debt collection agency, take court action or use distraint. If you cannot afford to pay anything, you should still speak to Debt Management and explain your situation. For more information see Repaying the overpayment.

General information and forms

You can find general information about tax credits and the appeal and dispute forms on the HMRC website.

You can also get the forms by phoning the Tax Credit Helpline and asking for a copy.

Contacting HMRC about your tax credits

Phone the Tax Credit Helpline on 0345 300 3900. The helpline is open every day (except Christmas Day, Boxing Day and New Years Day) from 8am to 8pm.

If you are deaf or have a hearing or speech impairment, the textphone number is 0345 300 3909.

If English is not your first language, ask for a translator straight away when you ring them.

Writing to HMRC about your tax credits

The offices that deal with difficulties with your tax credits were scheduled to move at the time of writing this guide. Make sure you have the correct address by looking on the internet or phoning the tax credit hotline.

For further information about your appeal

HM Courts and Tribunal Service (HMCTS) is the government agency responsible for the administration of appeals. You can find useful information about the appeal process here: Social security and child support tribunal - appeals

For Complaints

The Adjudicator’s Office
PO Box 10280
Nottingham
NG2 9PF

Tel: 0300 057 1111
E-mail: adjudicators@gtnet.gov.uk

The Parliamentary and Health Service Ombudsman
Millbank Tower
Millbank
London
SW1P 4QP

Tel: 0345 015 4033
E-Mail: phso.enquiries@ombudsman.org.uk

Contact your MP
Find details of your MP and write to them here:  Contact your MP 

Disclaimer

The information in this guide applies to England and Wales and is for general purposes only. The law may be different if you live in Scotland or Northern Ireland.

The law is complicated. We have simplified things in the guide to give you an idea of how the law applies to you. Please don't rely on this guide as a complete statement of the law or as a substitute for getting legal advice about what to do in the specific circumstances of your case.

The quotes and cases we refer to are not always real but show a typical situation. We hope they help you think about how to deal with your own situation.

Acknowledgements

This guide was written by Victoria Todd of the Low Incomes Tax Reform Group and edited and produced by Law for Life's Advicenow project. Advicenow would like to thank all those who provided feedback on this guide or took part in the pilot.