To begin with, overpaid tax credits can occur at any time and receiving an overpayment of tax credits doesn’t necessarily mean that you have done anything wrong with your tax returns. Of course, developing a good tax strategy will necessarily mean trying to maximise tax credit, where appropriate. In other words, most individuals want to maximise their tax credit entitlement so that their overall tax liability is reduced. However, changing financial circumstances over the course of the tax year or a change in the tax credit system could result in a tax credits overpayment letter being issued by the tax authorities. What should you do if you receive one?
What is a tax credits overpayment?
There are different types of tax credits that can be overpaid: child tax credits, pension tax credits and working tax credits. In the main, people who claim these credits are on a low income and require assistance from the state. Child tax credits are only available to people with school-age children, and pension credits are only available to people of retirement age. Working tax credits are consequently the most common ones to be overpaid. Unlike other benefits, these credits are paid to claimants by HMRC and constitute part of their yearly tax bill. If circumstances change – for example, if someone claiming tax credits receives a raise or takes on more hours – then it can mean they are inadvertently overpaid. If so, HMRC tends to work this out at the end of the tax year and will issue a tax credits overpayment notification accordingly.
Do I have to pay back tax credit overpayments?
In the majority of cases, it will be a requirement to repay a tax credits overpayment. Just like an underpayment of personal tax through HMRC’s tax self-assessment system, the tax office will soon know when an individual’s tax issue is unsettled. However, just like other tax authorities around the world, HMRC is not infallible, and it makes mistakes with tax credit assessments. Consequently, it is entirely possible that a notification of overpaid tax credits is bogus and can, therefore, be challenged. While a challenge is possible, it requires sufficient evidence to support it, and HMRC will only accept challenges to tax credit overpayments with a TC846 form. In the UK, individuals only have three months to complete the form and submit it for formal consideration. If not, then the window for challenging the tax credits overpayment letter will have passed. Please note that there is a specific team at HMRC that deals with disputed working tax credit overpayment letters based in Preston. All correspondence, including the aforementioned TC486 form, should be addressed to them.
Professional guidance for a tax credit dispute
At Tallard Management, our numerous professional services cover tax strategies and governance, so we are ideally placed to help with tax credit debt. Please bear in mind that owing the tax office money is not like any other creditor, and issues with working tax credit overpayments must not be put off, or interest charges – and other potential penalties – could soon apply. That’s why seeking independent and professional advice is often extremely useful. Certainly, it can be a better option than waiting for a response on the tax credit overpayment helpline, which won’t necessarily mean getting the tailored advice you need for the full range of tax issues and the wider financial circumstances you might face.
Dealing with tax credit debt management
Tallard Management’s expertise in tax credit disputes will often mean being able to resolve issues with the tax office when a notification of overpayment of tax credits is incorrect, and the recipient was, indeed, entitled to everything they received. However, it is more often the case that we will be asked to help with tax credit debt recovery instead. This occurs when overpaid tax credits have been found, but HMRC is reclaiming them at an unaffordable rate.
Typically, HMRC officials will determine how sizeable the tax credit overpayment is and then reduce a sum from the claimant’s ongoing tax credit award. If the tax credit claimant is also a Universal Credit claimant, then deductions can be made from this benefit. This would most often be the case when a tax credit overpayment has been identified from someone who is no longer entitled to claim tax credits. There again, HMRC may contact you to say that the sum needs to be settled directly. They can ask for it all to be repaid or for you to set up a direct debit from your bank. In some cases, the tax authorities may even instruct your bank to repay the sum – or part of it – or seek a court order against you to force you to pay. If you need an intermediary to act on your behalf to negotiate a fair repayment plan for your overpaid tax credits, then feel free to get in contact with us.