Tax credits are means tested and can sometimes be overpaid through no fault of the payee. However, this doesn’t prevent the Tax Credit Office from requesting that the payee returns the money. If you feel that the overpayment was due to poor advice given by HMRC or the result of its mistake, you do have the right to challenge the decision to request repayment by raising a dispute.

How do overpayments happen?

Your tax credits are calculated annually in accordance with the April to April tax year. Throughout the course of a particular tax year, the amount of tax credit you receive is worked out based on the amount you earned during the previous tax year. At the end of the year, HMRC compares the amount it has paid you with the amount that you should have been entitled to based on your earnings for the year that has just ended. If it appears that you were paid more than you were entitled to, this is an overpayment and it is at this point that you may be asked to pay money back.

An overpayment of this nature may be due to your failure to notify HMRC of a change in circumstances or due to its failure to promptly record that information. It could also be due to the fact that you earned £5000 more than you did in the previous year. In certain circumstances, your payments may be adjusted during the course of a tax year because HMRC has realised that you are being paid too much.

You are entitled to ask for an explanation of your overpayments by telephoning the Tax Credits Helpline. You should keep a record of any information given during that telephone call. You can also seek tax credit overpayment legal help if you are concerned about making repayments or feel that you have been treated unfairly.

Other reasons for overpayment

In addition to changes in your income, you may find that overpayments have occurred due to a change in your personal circumstances. For example if you have moved in with a new partner, this can affect the amount of tax credits you are entitled to. You might not think to report your new circumstances but it is important to notify HMRC as soon as possible. Reporting the change late can lead to overpayments occurring.

If you don’t report it immediately, when HMRC becomes aware of the change, officials will work out what you would have been paid if you had reported the change when it happened. Your overpayment may then be reduced or written off in line with this calculation. If you feel that this may apply to you, it is possible to check with the Tax Credits Helpline.

Tax credits can seem very complicated but if you ensure that you notify HMRC of any changes to your personal and financial circumstances as and when they happen, large overpayments are unlikely to occur.

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