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If you ask any benefits advisor which sorts of cases annoy them the most, chances are they’ll include tax credits overpayments in the list. If you’ve been asked to pay back an overpayment you will probably have some idea why.
This is what we’ll look at on this page:
- What normally causes overpayments?
- How to avoid overpayments in the first place.
- What to do if you are asked to repay an overpayment.
What normally causes overpayments?
First things first: what is an overpayment?
An overpayment happens because you have been paid too much of whatever it is. Once upon a time whoever is paying you money thought you were entitled to a certain amount, but now they have changed their mind and decided that you are entitled to less; and not just less now, but less in the past. And because you were entitled to less in the past, it follows that you owe them money.
That might seem obvious to you. But it’s important to be really clear about this, before you get dragged into the detail.
Here’s one important reason why. You may have heard that you cannot appeal against an overpayment decision. That’s not quite true. You can’t appeal against the decision telling you that there is an overpayment: however you can appeal the decision that reduced the amount you were entitled to. I’ll talk more about this later.
As I've said before, the big problem with tax credits is that they are assessed on an annual basis. The Tax Credit Office pay you amounts over a year based on what they predict you will be entitled to, and then, when the tax year is over, they work out what you were actually entitled to. If you were actually entitled to more, you will have been underpaid and they owe you money. But if you were actually entitled to less, you will have been overpaid, and owe them money.
For the purposes of this web page I've divided tax credit overpayments into five classes. You won’t find it done in quite the same way anywhere else but trust me, it makes sense…
- Your income is higher than expected (although the good news is that it has to be £5,000 more before it can cause an overpayment)
- You having been getting the disabled worker element or the severe
disability worker element of Working Tax Credit, or the disabled child
or severely disabled child element of Child Tax Credit, but the
reasons for getting whichever of these you have don’t apply anymore 3.
- One of the changes you are required to tell them about within a month happens but you don’t tell them. The main examples of these are:
- You were in a couple but have separated, or were single but are now in a couple
- The number of children you are responsible has gone down (or a child or young person has stopped counting as a child or young person)
- Your childcare costs have gone down by more than £10 a week or have stopped altogether
- Your Working Tax Credit assumes you work 16 hours a week or more, or 24 hours a week or more, or 30 hours a week or more, but you now work less
- You have left the UK or don’t have the right to reside in the UK anymore
- The Tax Credit Office thinks that one or more of the changes in 1, 2, or 3 has happened, but they’re wrong: in other words they think there is an overpayment but really there isn’t.
- One or more of the changes in 1, 2, or 3 has happened, but the Tax Credit Office hasn’t got all the facts right: in other words there probably is an overpayment but it isn’t what they think it is.
|If one of the changes in number 3 above applies to you and you don’t tell the Tax Credit Office, not only may you need to repay an overpayment: you may be asked to pay a penalty as well if the Tax Credit Office doesn’t think you have a good excuse for not telling them. The penalty could be as high as £3,000, and they have the power to add interest.|
The only problem with this advice is that sometimes they don’t listen to you when you tell them about changes. If this happens you can end up getting overpaid anyway: you don’t want to be in a position where it’s your word against theirs. So here is some more advice:
- If you tell the Tax Credit Office about a change, make sure you check afterwards that they have noted the change: you might phone them a couple of weeks later to check.
- Make sure you’ve got good evidence that you told them. If you phoned them, keep a record of the date and time of the phone call (you can ask for a recording of the call if there is a dispute). If you wrote to them, send the letter by recorded delivery, and keep a copy of the letter and a copy of the Royal Mail’s confirmation that the letter was delivered.
What to do if you are asked to repay an overpaymentThis might seem obvious, but the key thing is to work out why the Tax Credit Office thinks that they have overpaid you. If you can work this out it helps you work out the best strategy for challenging them. Apart from anything else, if you want to tell them that you disagree with them, it helps to be able to say why you disagree.
- Try to understand why the Tax Credit Office think you have been overpaid: compare what they have told you with what I've said before about the causes of overpayments.
- Decide if you agree or disagree with their reasons, or decide that you don’t understand their reasons
Work out which of my five classes of overpayments your one is, if you can (I emphasise that only I give tax credit overpayments these numbers).
- Is the overpayment class 1, 2, or 3? In other words, do you agree that there has been a change in your circumstances that has reduced your entitlement?
- Is the overpayment class 4? In other words, do you disagree with the Tax Credit Office that your entitlement has changed?
- Is the overpayment class 5? In other words do you agree that there has been a change in your circumstances, but disagree with the actual amounts?
- Are you unsure what they’re saying? (Don’t feel bad if this applies to you)
Choose one of the above and click on it for further information.