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Last Updated: Wednesday, 22 June 2005, 10:35 GMT 11:35 UK
Ask the expert: Tax credit overpayment
Inland Revenue head quarters
The HM Revenue & Customs processes tax credits
BBC News website's Ask the Expert column gives readers a chance to have their financial questions answered.

This week Pauline Hunter, a rights worker at the Disability Alliance, helps Your Money reader Amanda Reid.

Ms Reid receives the Working Tax Credit, but has been told she must pay 3,000 back because she has been overpaid.

She is disabled and is not currently working. She says the overpayment is not her fault and wants to know where she can get help.

Pauline Hunter writes:

One of the biggest problems with tax credits is the issue of overpayments.

Unfortunately, your experience is not uncommon because of the way tax credits work.

Disabled people are particularly at risk of being overpaid because they are more likely to move in and out of work.


The good news is that in certain circumstances an overpayment such as yours may not be recoverable.

The HM Revenue & Customs administers Working Tax Credit. The amount of tax credit paid in a particular year is usually an estimated amount based on the previous year's income and adjusted finally, at the end of the tax year, once the income for the year is known.

There is a built-in 2,500 disregard, which means that if your income goes up by less than 2,500 you will not incur an overpayment. If your income reduces at all you will be underpaid and the amount will be reimbursed in a lump sum to you.

Awards can be adjusted in-year when changes occur and this can reduce or eliminate an overpayment.

However, it is only when your entitlement is finalised at the end of the year that the final overpayment is known.

Citizens Advice offers online and practical advice - and has a fact sheet on tax credit overpayments available on its website (see link on right)
Advice now offers online and a directory of local welfare rights services
Your MP may be able to intervene on your behalf

Where an overpayment is due to official error it will not be recovered. Errors can occur, for example, when claim forms are scanned and information has been misread.

Other mistakes or delays can be created when inputting information regarding change of circumstance.

The test is that the Revenue must have made the mistake and "it was reasonable to think your award was right" or it would cause hardship to you or your family if you had to pay the money back.

The Revenue's approach to overpayments is outlined in COP 26 - the Code of Practice on overpayments.

The code lists factors, which can be taken into account when considering hardship, and includes claimants with a disability whose health could be affected by having to pay back the debt.

Other factors which can be taken into account include income and essential living expenses, your savings, outgoings such as rent or mortgage repayments, whether you have a child under five-years-old, and any other factors that may be relevant.

What you should do

  • Contact the Tax Credit Office address at the top of the award notice and let them know if you are unhappy about your award or a decision you have received
  • Contact the Tax Cedit Helpline on 0845 300 3900
  • Request TC647 for a breakdown of the award - useful in identifying mistakes in entitlement
  • Download a copy of COP26 the Code of Practice from the Revenue's website(see link on right)
  • The Adjudicator's Office handles complaints including those about the Tax Credit Office (see link on right)
  • Seek advice from a local advice agency such as Citizens Advice. It is not always easy to identify official error or explain how recovery will cause hardship
  • Problems with tax credit overpayments can have an adverse effect on benefits such as income support and housing benefit - seek further advice

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.



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