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Tax Credit Over-Payment Debts

It seems so unfair. You may have, through no fault of your own, been overpaid tax credits. You may have budgeted taking into account this money. And now, you’ve been told you must pay it back.

With tight finances and other debts to take into account, what can you do?

We won’t explain appealing against tax credit and over-payment repayment decisions – that is explained in the linked leaflet.

This leaflet explains why over-payments happen and how to pay them back. It also tells you when you don’t have to pay them back and how to dispute an overpayment.

We’ll explain what will happen if you do not pay back any arrears and how to best tackle debt problems involving multiple debts, including tax credits.

How much do I have to pay back

Exactly how much you’re required to pay back depends on several factors; but the most possible that could be reclaimed is detailed below:

Your tax credits award The most you’ll have to pay back
For those entitled to the maximum tax credits with no reduction due to income 10%
If you are getting Child Tax Credit or Working Tax Credit below the maximum and your total household income is £20,000 or less 25%
From April 2016 if your total household
income exceeds £20,000
If you’re only getting the family element of Child Tax Credit 100%

How will I have to make repayments?

It depends on your personal situation. Deductions can be made from your current tax credits; or by direct debit in instalments; or a combination of both.

If you are no longer in receipt of any tax credits and are delaying payment or are refusing to pay; payment can be enforced by adjusting your tax code or by deductions from an ongoing Universal Credit award.

Bankruptcy & Tax Credits Overpayments

Any such overpayment may be entered as a debt in a bankruptcy provided the overpayment has been ‘determined’ prior to the date of approval of the bankruptcy order.

For Tax Credit purposes, ‘determined’ means that the overpayment was included in a Final Award Notice (FAN) or a Statement of Account (SOA), so the size of the debt is known.

As far as insolvency law is concerned, such debts are unsecured and are therefore treated in the same way as any other unsecured debt you owe. It does not receive any preferential treatment. As such it can be included if you go bankrupt.

IVAs & Tax Credit Overpayments

Any such overpayment may be entered as a debt in an IVA proposal provided the overpayment has been ‘determined’ prior to the date of approval of the IVA.

However, the situation can be complex. If you’re married or co-habiting with a partner, the tax credit award and subsequent overpayment may be made jointly to both of you. If you’re partner is not entering into an IVA, they will be liable for repayment of the whole debt.[show-iva-cta]