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Tax credit overpayments (Scotland)
This fact sheet covers Scotland. You will need different advice if you live in England & Wales.
This fact sheet explains what a tax credit overpayment is and ways to deal with an overpayment.
Use this fact sheet to:
- understand why you may have a tax credit overpayment;
- know how you may be able to appeal an incorrect benefit overpayment decision;
- find out what options you have to deal with a tax credit overpayment; and
- understand how the overpayment may be recovered.
What is a tax credit overpayment?
A tax credit overpayment is money owed as a result of being paid more tax credits than you were entitled to. Tax credit overpayments are owed to and collected by HM Revenues & Custom (HMRC).
Overpayments may occur for a variety of reasons, for example, because:
- the tax credit office making a mistake;
- the information you gave the tax credits office may have been incorrect; or
- you didn’t inform the tax credit office of a change in circumstance which would have meant your benefit would reduce or stop.
All tax credit overpayments are recoverable, regardless of the reason for the overpayment. However, HMRC can decide whether to recover the overpayment or not.
If you have been overpaid, you'll receive an award notice which outlines the revised decision. The award notice can be very complicated. If you are unsure if the award is correct and need more information, you can ask for an award calculation notice (TC647) from HMRC. The award calculation notice gives more detail about how the award was calculated. To request the notice call the helpline on 0345 300 3900.
If you do not agree that you were overpaid, you can request a mandatory reconsideration using Form WTC/AP. For more information see the Mandatory reconsideration section that follows.
If you agree that you did receive more tax credits than you were entitled to, but do not think you should pay it back because you believe it was a mistake by HMRC, you can dispute the overpayment using a Form TC846. For more information, see the Dispute due to HMRC mistake section.
You can't appeal a decision to recover an overpayment. However, you can appeal against a decision that you have been overpaid, or the amount of the overpayment, by asking for a mandatory reconsideration. The request should be made within 30 days of the date on the revised award notice. Your request should be in writing and you can use the Form WTC/AP.
Late mandatory reconsideration requests
If you are outside the 30-day period, you can still apply for a mandatory reconsideration within 13 months of the revised notice award. However, you will need show HMRC that there were special circumstances which meant that you could not meet the 30-day time limit (for example, you had a serious illness).
If you're application is refused, HMRC state that you have no right to appeal this or the original decision. However, a decision in a recent court case has said that this is not correct. You can appeal against the original decision, even if HMRC refuses to accept your late application, as long as you applied within 13 months.
HMRC aim to carry out the mandatory reconsideration within 42 days. HMRC may request more information from you, it is important to respond as you may be given a penalty if you do not.
After making a mandatory reconsideration request, you should receive a mandatory reconsideration notice, which will tell you the outcome. If you think the decision is wrong, you can appeal to the First-tier Tribunal.
If you are not satisfied with the outcome of the mandatory reconsideration, you can appeal to the First-tier Tribunal on the Form SSCS5.
You must be able to prove to the First-tier Tribunal that HMRC have considered your mandatory reconsideration application. Send a copy of the mandatory reconsideration notice to the tribunal when you appeal.
Also supply any documents that support your appeal that have not already been given to HMRC, and give a summary of why you think the HMRC decision is wrong.
- You can request to attend the hearing when you make the application if you wish. This can be in person or remotely (telephone or video link).
- The tribunal must deal with the case fairly and justly.
- The tribunal can ask you or HMRC for further information to help them make a decision. it is important to respond to any request or your appeal could be struck out (dismissed by the tribunal).
- You can have a representative who can help present your case to the tribunal. You’d need to give the tribunal written notice of this at least 14 days before the hearing.
It is usually advisable to attend the hearing if possible as you will be able to explain your situation..
Time limits for appealing
You should make the appeal within one month from the date you have been sent the mandatory reconsideration notice. However, if you appeal after this time but within 13 months of being sent the notice, your appeal may still be treated as being in time as long as HMRC do not object. If HMRC do object, the First-tier Tribunal can accept the appeal if it is in the interest of justice.
The tribunal will send you a decision notice, this will give the tribunal’s decision and the reasons for it. If you are successful, HMRC should carry out the tribunal’s instructions straight away, unless HMRC decide to appeal.
If youare unsuccessful in your appeal , you may be able consider a set aside on procedural grounds but only if it is in the interest of justice to do so. You may also be able appeal to the Upper Tribunal. You’d need to be able to show that there has been an error of law. Get specialist advice from a a benefit adviser before considering either option.
More information on the first-tier tribunal process can be found on the GOV.UK website.
Dispute due to HMRC mistake
If you agree that you received more tax credits than you were entitled to, but do not think you should pay it back because you believe it was a mistake by HMRC, you can dispute the decision to collect the overpayment using Form TC846.
The HMRC leaflet What happens if we’ve paid you too much tax credit? (COP26) has more information or call the Tax Credits Helpline on 0345 300 3900.
HMRC expect the dispute to be started within three months of the decision (notification of the overpayment, outcome of the mandatory reconsideration or appeal decision). While there is no legal time limit by when the application has to be made, you will need to convince HMRC that there were reasons for any late disputes (for example, a serious illness).
Recovery will continue during the decision-making process.
If you are unhappy about the service you have received from HMRC, you can make a formal complaint using HMRC’s complaints procedure.
If you are unhappy with HMRC's response to your complaint, you can escalate the complaint to the Adjudicator’s Office. You can call them on 0300 057 1111.
Finally, you can escalate the complaint to the Parliamentary and Health Service Ombudsman through your MP. You can call the Parliamentary and Health Service Ombudsman on 0345 015 4033.
There may be a variety of ways to deal with money owed to a benefit overpayment and any other debts you may have. Your best option will depend on your situation.
To find out more, see our Ways to clear your debt fact sheet
You may be asked to repay an ‘in-year’ overpayment or an ‘end of year’ overpayment.
- An in-year overpayment is for a claim which you are currently being paid.
- An end of year overpayment is for a claim for a period that has already ended.
Deductions from ongoing award
HMRC will pass collection of the overpayment to their debt management team.
If you currently claim tax credits, it is likely that HMRC will reduce your ongoing award until the overpayment is paid back.
If the overpayment is an end of year overpayment, the maximum that can be recovered is:
- 10% of your award if you are receiving the maximum tax credit amount;
- 100% of your award if you receive only the family element of Child Tax Credit;
- 50% of your award if your income is over £20,000 a year; or
- 25% of your award if none of the above apply.
These maximum amounts do not apply to in-year overpayments.
If the rate of recovery is causing financial hardship, you should try to negotiate reduced payments. Contact the Tax Credit Payment Helpline on 0345 302 1429 or write to the address on the notice to pay. You will need to share Your budget to show why the repayments are difficult for you. In urgent cases, a decision about adjusting payments can be made in two days.
If you are still receiving tax credits, you can use form TC1133 to try to reduce how much you repay using a government gateway account.
Collection by DWP
HMRC can transfer the debt to the Department of Work and Pensions (DWP) to recover. If this happens, the debt can be recovered as though it is a universal credit overpayment. For more information, see the Recovery section of the Universal Credit overpayments fact sheet.
The debt should not be transferred to the DWP if there is an ongoing dispute or ongoing mandatory reconsideration.
Collection by HMRC
If HMRC are unable to take money from an ongoing tax credit award and do not pass the debt to the DWP, you can be asked to make direct payments to HMRC. You should be notified via a TC610 form and given 42 days to pay the amount owed or try to agree a payment plan. If you can clear the amount owed in less than 12 months, it is likely that HMRC will agree to this. Payment plans can be agreed over a longer period if Your budget shows you are unable to repay it quicker.
HMRC may pass the debt to a debt collection agency (DCA) if a payment plan isn't agreed. DCA’s are not bailiffs and have no powers to enter your property or remove items.
If the DCA is unable to make an arrangement with you to repay the debt, they will pass it back to HMRC who can then consider other methods of collection.
- Bailiffs can be used to try and remove items from your property. If this happens, please call us for advice. Bailiffs do not have the power to force entry to your property so you should not let them in. Unlike most other creditors, HMRC do not need to get a court order to use bailiffs.
- With your consent, HMRC can recover overpayments from particular benefits. Consent is not needed if the debt has been transferred to DWP.
- With your consent, HMRC may recover overpayments from your wages. Consent is not needed if the debt has been transferred to the DWP.
- In some circumstances, such the debt being at least £1000, HMRC have the power to take money from your bank account. They do not need a court order to do this. Money can be taken from individual, joint and business accounts.
- HMRC can also look to obtain a county court judgment (CCJ) against you, although this is rare as they can take enforcement steps without having to get a CCJ first.
- While HMRC do have the power to send someone to prison, this does not happen in practice.
More than one tax credit overpayment
If you have an ongoing recovery from your tax credit entitlement and you also have a previous year’s tax credit overpayment, HMRC should not recover both at the same time. HMRC guidance says that they should not use direct recovery until the ongoing recovery has ended.
If HMRC are trying to recover two or more amounts at the same time, ask them to stop. Speak to a benefit adviser for help if needed.
If your overpayment is in joint names, HMRC guidance says that they can pursue one person for the whole amount owed. But in practice, they should look to recover the money equally from each claimant. If one of the persons liable has acted fraudulently, HMRC are more likely to recover the whole debt from this person.
In cases of hardship, or if you have mental health issues, you can ask that the overpayment be written off. This means the debt will not need to be repaid. You will need to show HMRC Your budget so they can see that you will be unable to meet your essential living costs and you should provide evidence of any physical or mental health problems.
HMRC should deal with your case positively and sympathetically to avoid causing distress.
Even if HMRC do not agree to write of the debt, they can decide to stop recovery for 12 months if you have no ability to pay. They will review their recovery options (including write off) again at the ends of the 12-month period.
To request a write off contact the Tax Credit Payment Helpline on 0345 302 1429 or write to the address on their overpayment notice.
Civil Penalties and fraud
You can be given a financial penalty if you have fraudulently or negligently made an incorrect statement or declaration. Financial penalties are not a criminal mattter. Payment is required with 30 days and interest can be added. You can also receive a penalty for not complying with a request by HMRC for information.
If you do not come to an agreement to repay the penalty, HMRC can use the same methods of recovery as for the overpayment.
You may have committed a criminal offence (fraud) if you knowingly took part in fraudulent activity to obtain tax credits. If you have been suspected of fraud, you should seek legal advice from a solicitor.
If you are convicted of fraud, you may receive a court fine or face imprisonment. You may also lose your right to tax credits for a period of time. The length of time will depend on the offence.
Time limit for recovery
The Prescription and Limitation (Scotland) Act 1973 sets out the rules on how long a creditor (who you owe money to) has to take certain action against you to recover a debt.
Time limits for the recovery of Tax Credit overpayments are complicated. You may need legal help to check whether an overpayment can still be recovered from you. Contact us for advice about finding the right type of legal help
HMRC can recover overpayments from some benefits and wages without taking court action.
GOV.UK for information on finding legal advice www.gov.uk/find-legal-advice
HMRC Tax Credit Payment Helpline Phone 0345 302 1429
Independant Case Examiner Phone 0800 414 8529 www.gov.uk/government/organisations/independent-case-examiner
The Parliamentary and Health Service Ombudsman Phone 0345 015 4033 www.ombudsman.org
Turn2us for information on finding a benefits adviser https://advicefinder.turn2us.org.uk/