Tax Credit Overpayment: What You Need to Know

Sorting tax credit overpayments can be confusing and stressful, especially if you receive a letter from HMRC stating that you owe money.

Recently, I supported a deaf couple who received such a letter, helping them understand their options and communicate effectively with HMRC. If you are in a similar situation, don’t panic—there are steps you can take to fix the issue.

What is a Tax Credit Overpayment?

A tax credit overpayment happens when you receive more tax credits than you were entitled to during a tax year (which runs from April 6th to April 5th of the following year). HMRC reviews payments annually, and if they find an overpayment, they will ask for the excess amount to be repaid.

If you receive a letter from HMRC about an overpayment, take action as soon as possible. Ignoring the letter could lead to further financial and legal complications.

What to Do if You Receive a Repayment Demand

1. Understand Your Options

If HMRC demands immediate repayment, they will send a ‘direct recovery’ letter detailing the amount owed. However, you have options:

• Repayment Plan: You can contact HMRC to discuss setting up a manageable repayment plan.

• Challenge the Decision: If you believe the overpayment is incorrect, you may have the right to appeal.

• Seek Advice: If you’re unsure about the letter or how to proceed, professional advice can be invaluable.

  
  

2. What If HMRC is Already Deducting the Overpayment?

Sometimes, HMRC deducts the overpayment from your ongoing tax credit payments. This will be reflected in your award notice but won’t necessarily come with a separate letter. If you’re unsure, contact an advice agency or the tax credit helpline for clarification.

3. Why Have I Received a Letter Demanding Full Payment?

If you were already repaying an overpayment but suddenly receive a letter demanding immediate payment, it’s likely because your tax credit claim has ended. This could happen if:

• You moved in with a new partner

• You stopped working

Once your claim ends, HMRC cannot deduct repayments from your tax credits anymore, so they will request direct repayment. Even if you make a new claim, they will still ask for the outstanding amount from your previous claim.

What If Court Action is Involved?

If you receive a letter stating that HMRC is taking you to court or you have received court papers, act quickly:

• Contact HMRC immediately to ask if they can pause the court action.

• Discuss repayment options to avoid legal proceedings.

• If the case has already gone to court, seek legal advice as soon as possible.

  
  

Need Help?

As someone who supports deaf individuals with finances, household bills, and everyday challenges, I can assist you in understanding and responding to tax credit overpayments.

If you need help sorting through your tax credit claim or understanding an HMRC letter, please get in touch with me at carron@pasupport.co.uk

Let’s work together to find the best solution for your situation.