HMRC Overpayment Debt

If HMRC comes to the conclusion that too much tax credit has been paid to you – known as tax credit overpayment – they can ask you to pay back the balance. This can occur if:

  • Your situation changes, even if the changes are reported by you in plenty or time
  • There is a mistake made, either by you or by the Tax Credit Office
  • You are late to renew your tax credits

You will be contacted by the Tax Credit Office if they believe you owe the money back. They typically write to you to inform you of the balance and provide information on how to go about making repayments. If you believe that this is a mistake or that the amount they claim you have been overpaid is incorrect, you can make an appeal.

How this debt is recovered varies depending on you and whether or not you are receiving any tax credit. If you are, your overpayment debt would be classed as a priority debt. HMRC has the ability to recover the debt by deducting from the ongoing tax credits prior to you receiving them. If you are not receiving tax credits anymore, the debt may be treated as non priority.

‘Enforcement action’ can be taken against you by HMRC if you fail to pay the money you owe by the time you agreed. They have the power to collect the remaining debt through the use of a debt collection agency. Alternatively, the Department for Work and Pensions (DWP) may have your debt passed on to them if HMRC cannot get back from you the money you owe.

In this situation, you will receive a ‘TC1131 (non-UC) letter. Then the DWP will organise with you a method of debt recovery that is suitable. These methods include:

  • A payment plan you agree to follow
  • A reduction in other benefits
  • A Direct Earning Attachment, where your employer is asked authorise taking money directly from your earnings
  • Making use of a debt collection agency

If the overpayment was the result of a mistake on the part of HMRC and you have done your due diligence to report any mistakes you spot, they may decide not to pursue the recovery of the overpayment debt. Especially if pursuing the debt would lead to changes to your circumstances.

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