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i The advice on this page applies to anyone with personal debts taken out in the UK.

Tax credit overpayments. Advice for tax credit debt.

If HM Revenue & Customs (HMRC) have contacted you about a tax credit overpayment and you’re struggling to deal with your finances as a result, we can help.

When you apply for tax credits from HMRC, you provide details of your household income. HMRC then work out your tax credit payments based on the amount they expect you to earn during the year.

At the end of the tax year, HMRC look at the income you actually received during the year. If this was more than they expected, you may have been paid too much in tax credits. You’ll need to repay this, as like other income tax arrears, the consequences of not paying can be very serious. If you need help with your arrears we'd recommend getting expert debt advice.

If your income goes up or down, it’s important to let HMRC know straight away so they can adjust your tax credit payment. This will help to prevent an overpayment at the start of the next tax year when your award is reassessed. You can notify HMRC of any changes on 0345 300 3900.

How can I pay a tax credit debt?

The most common ways tax debt can be collected are by:

  • Reducing your future tax credit payments until the overpayment has been paid.
  1. If you’re not working and you get the maximum amount of tax credits, your payments will usually be reduced by 10% until the overpayment is cleared.
  2. If you’re working or not getting the maximum tax credits amount, your payments will usually be reduced by 25%.
  3. If you’re getting the minimum amount of tax credits (£545 a year), your payments will usually stop until the overpayment is cleared.
  • Asking you to pay them directly in monthly instalments
  • Passing the debt to a debt collection agency to contact you. These people don’t have any extra powers
  • Taking money directly from your benefits
  • Taking money directly from your wage by increasing the amount of tax you pay. HMRC can do this for debts of up to £3,000, if you earn less than £30,000. If you earn more than this, they can collect larger debts through your tax code, up to a maximum of £17,000 (if you earn more than £90,000 a year)
  • Take you to court and get a judgment or decree
  • Send bailiffs (enforcement agents) to your home. HMRC don’t need a court order to send bailiffs, but they rarely use this power (England/Wales only) 

If you contact HMRC and make an agreement to repay the debt, it’s very unlikely they’ll use these powers.

Many old tax credit debts are now being passed to the DWP for recovery. This is especially common for those claiming Universal Credit. If you have tax credit debts, they might be recovered by the DWP. In this case, they follow the rules for recovering DWP benefit overpayments.

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What if I don’t agree with the tax credit overpayment?

If you don’t agree with the overpayment you can ask HMRC to review it. To do this you need to contact HMRC on 0345 300 3900 or complete and return a tax credit overpayments form TC846. You normally have three months to do this. HMRC can also continue to reclaim tax credit overpayments while they review your dispute.

How long do I have to pay a tax credit debt?

If you’ve been asked to pay back a tax credit overpayment and you can’t afford to do this within 30 days, you should call HMRC on 0345 302 1429.

If you’ve been asked to pay HMRC directly, the time they’ll usually allow you to pay back the overpayment is either:

  • 12 months – they’ll usually allow you to pay in twelve monthly instalments without giving them any further information.
  • Up to 10 years – they’ll usually agree to this without asking for any further information, as long as you can pay more than £10 a month. If the amount you can afford is less than £10 per month, they may still agree to this if you can afford to pay the debt off in less than three years
  • Over 10 years – you’ll need to provide a budget and pay more than £10 a month. If it’ll take you a very long time to repay the debt, HMRC may consider writing off the debt after 10 years. We can help you put together a budget which shows your current financial situation

If you can’t afford £10 a month and it’ll take longer than three years to pay off the debt, HMRC may agree to put the debt on hold for 12 months. If your situation is the same a year later and you still can’t afford £10 a month, they may agree to write off the debt.

Need help with your finances?

We’ll put together a tailored budget based on your income and living costs, and we’ll work out what you can realistically afford to pay to HMRC and any other debt you have. We’ll also look at the right debt solution for your situation and support you all the way.

Take two minutes to answer a few simple questions, so we can understand the best way to help you. Alternatively you can call us (free from all landlines and mobiles) for expert, impartial advice tailored to your situation.

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