Tax credit overpayments can take place when an individual’s information with the HMRC is incorrect or incomplete or there has been a recent change of circumstances that were not reported to authorities. Through this blog post, we will explore whether a tax credit overpayment can be written off by authorities and under what circumstances, For a broader perpective, we will also explore how tax credit overpayments can be paid back to HMRC, the consequences of being unable to pay back such debt, as well as the nature of tax refunds, how and when they take place.

Can Tax Credit Overpayment Be Written Off?

Tax credit overpayments are rarely written off, even though HMRC can consider an individual’s application to reduce the total amount to be paid or ease in instalments due to financial hardship. In the rare case that HMRC does release a person from overpaid tax credit debt, it is termed a remission.

If an individual is successful in having their tax credit overpayment written off under remission, it must be due to one of the following reasons:

  • The individual is facing a terminal illness or a mental illness
  • The individual is facing severe hardship
  • The individual has passed away

However, if someone loses a close family member, they may be granted temporary relief from tax credit overpayment returns while the debt may not be completely written off.

In either of the cases, the individual claiming a write off from debt will have to contact the HMRC (preferably via a phone call), inform them of their situation and provide the desired evidence in support of their claim.

In the case tax credit overpayment debt is not written off, the HMRC may offer claimants a temporary relief by reducing the amount that they pay at each interval or stop the payments for a limited period of time.

If you have been overpaid tax credits by the HMRC, they will inform you of the amount that is due from your end and the mode of repayment. However, how you repay an overpayment of tax credits to HMRC depends on the following factors:

  • you still get tax credit payments
  • you are claiming Universal Credit
  • you are receiving neither tax credit nor Universal Credit

If you still get tax credits, HMRC will simply reduce your tax credits to account for the overpayment. The amount that is reduced each month will depend on how much you receive from them and your household income. Below are the details of this reduction:

  • if your household income is £20,000 or less and you get maximum tax credits, the reduction will be10%
  • if your household income is £20,000 or less and you get less than the maximum tax credits, the reduction will be 25%
  • if your household income is more than £20,000, the reduction will be 50%

How Can I Repay Tax Credits Overpayment?

Tax credit overpayments can be repaid in any of the following ways:

  • Direct debit
  • Online and telephone banking
  • At your bank or building society
  • By cheque through postal service

You should include the following with your payment:

  • your name, address and phone number
  • your tax credit reference number
  • how much you’re paying
  • the period you’re paying for

If you are claiming Universal Credit and have overpaid tax credits, your future payments will be reduced by the HMRC until your dues are cleared.

If you receive neither tax credits nor Universal Credit, you will be sent a “notice to pay” by HMRC which you must pay within 30 days. 

If you are getting pension income or are in PAYE employment, the HMRC can readjust your tax code to recover overpaid tax credits as well. The amount that is recovered and deducted each month will depend on your monthly income.

What Happens If Someone Cannot Afford Repayment of Overpaid Tax Credits?

If you cannot afford to repay your overpaid tax credits due to financial hardship, you should write an application to HMRC. They usually consider such situations and reduce the amount that is deducted each month (this may increase the number of your instalments while giving you a monthly relief.

You can request HMRC for the following if you are unable to repay overpaid tax credits as per their schedule of deductions:

  • how much do you have to pay back in each instalment
  • how long do you have to pay the money back
  • the way you pay the money back

However, HMRC will ask you to share details of the following when you apply for consideration in lieu of your financial situation:

  • any savings and income that you may have; this includes benefits and pensions
  • your living expenses; which include rent, mortgage or childcare payments and household costs
  • any other repayments that you have to make; including loans, credit cards and utility bill repayments

How Long Does A Tax Refund Take Using An R40 Form?

It usually takes the HMRC between 8-12 weeks to refund taxes after a claimant has filed an application for a tax refund using the R40 form. While smaller amounts such as those below £1,000 can be processed earlier especially if the application has been made avoiding the busiest period of self-assessment returns being filed around January, processing of larger amounts takes time due to the checks involved during the process of a tax refund application.

While claimants can followup up with HMRC to confirm the status of their tax refund application once an R40 form has been submitted, it will not be of much help to ask them before 5 weeks in case of an online application and 6 weeks if you have applied through the post.

Once your tax refund has been authorised by the HMRC, it takes 5 working days for the amount to be transferred to your bank account; while cheques and payable orders can take up to another 5 weeks.

Why Do Have I Overpaid Taxes?

The reason(s) why salaried individuals may overpay their taxes through a PAYE scheme may be classified as follows:

  • They started a new job and were assigned an emergency tax code on a temporary basis
  • Their employer used an incorrect tax code
  • They held a job for a part of the year (and not the entire tax term)
  • They had more than one job at the same time
  • They are a student who only worked during holidays
  • Their “other incomes” have been reduced
  • They stopped working in the middle of the year and had no taxable income or benefits
  • Their circumstances changed; such as moving from full time to part-time work

In the case that a taxpayer has overpaid their tax due to any of the following reasons, 

  • being put on an emergency tax code due to starting a new job,
  • having two jobs simultaneously, or
  • switching from a full time to a part-time job

they can claim a tax refund and reclaim the amount from HMRC after the end of the tax year. Claims for overpaid taxes can be made for up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.

How Can I Claim A Tax Refund?

To claim a tax refund, you will need to use the P60 form and share the following details with HMRC:

  • your earnings in total
  • the amount of income tax that you have paid
  • the amount of income tax that you have paid in excess

Additionally, you must also provide details of your National Insurance number and employer reference number.

In the case that a taxpayer has overpaid their tax due to any of the following reasons, 

  • being put on an emergency tax code due to starting a new job,
  • having two jobs simultaneously, or
  • switching from a full time to a part-time job

they can reclaim the amount from HMRC after the end of the tax year. Claims for overpaid taxes can be made for up to four years. This means that an overpaid tax in 2022 can be claimed until 2026.

Conclusion:

The above discussion makes it clear that unless a claimant is faced with severe hardship, mental or terminal illness or has passed away, it is extremely difficult to convince authorities that a tax credit overpayment is written off. If you have been overpaid tax credits by the HMRC, they will inform you of the amount that is due from your end and the mode of repayment.

FAQs: Can Tax Credit Overpayment Be Written Off?

Do I have to pay back tax credit overpayment?

Yes, if you have tax credit overpayments, you must pay them back. This is a mandatory and priority-based repayment that needs to be done by individuals who have been paid tax credits in excess.

How long do I have to pay back a tax credit overpayment?

Individuals are usually assigned a 30-day time limit to start repaying their overpaid tax credit. The amount of time it takes to complete their repayment will depend on the amount due and the monthly instalment that is due. Should they be unable to meet this deadline, they must inform the Department for Work and Pension.

Can you go to jail for tax credit overpayment?

If you know that you have been overpaid tax credits and you choose to hide this information on purpose, you will be committing benefit fraud. For this, you can be sentenced to a jail term and be asked to pay back the excess amount.

Do HMRC automatically refund overpaid tax?

HMRC does refund overpaid tax; sometimes it is done automatically while at other times, claimants need to file an application to claim a refund.

How do I get my HMRC debt written off?

While it is not general practice to have an HMRC debt written off; it is possible in rare cases. HMRC debts can be written off through a debt solution such as IVA. This is an agreement between debtors and creditors to pay back debt through instalments over a period of time. Any unpaid amount after the due time is written off.

References:

Discussion: Tax Credit Overpayment – Rightsnet

Tax credits overpayments: If you cannot afford your repayments – GOV.UK

Paying back a working or child tax credits overpayment – Citizens Advice

How to repay your tax credits – GOV.UK

COP26 – What happens if we’ve paid you too much tax credit?

P60 tax refund examples – what do you need to know?

Claim back a flexibly accessed pension overpayment – GOV.UK

Form P55 for the tax year 2020-21 | CIPP

Claim a refund of Income Tax deducted from savings and investments (R40) – GOV.UK

How long does it take to get a tax refund from HMRC?

How do I claim back tax I have overpaid through PAYE on wages or pensions? | Low Incomes Claim a tax refund – GOV.UK

What if I pay too much tax?

Fact Sheet – Write off debt

Dealing with overpayment debt « How to deal with HMRC « Guidance « Tax Credits

Paying back a working or child tax credits overpayment – Citizens Advice

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