Overpaid tax credits are a debt that needs to be repaid by those who have received them. Through this article, we aim to learn whether you need to repay tax credit overpayment from 10 years ago or not, the methods of repaying tax credit overpayment, the consequences of not paying the debt back to authorities and a review of special circumstances under which tax credit overpaymnets can be written off.

Do I Have To Repay Tax Credit Overpayment From 10 Years Ago?

While it is not unusual for tax credit overpayments to go as far back as 10 years, however, the implication of the Limitation Act 1980 in England and Wales limits the recovery of tax credit debts to up to six years. 

Some say that this only applies in theory as individuals are the Act only prevents HMRC from taking Country Court action against individuals and they still have the authority to recover the overpaid amount through benefits being claimed by the said individuals.

Repayment of overpaid tax credits is usually done by way of 12 monthly installments; however, should claimants be unable to do so, they can request HMRC for the repayment schedule to go up to 10 years. 

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%

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.

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

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

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.

What Happens If You Forget To Tell Tax Credits About Change?

If you have previously forgotten to inform HMRC of a change in circumstances regarding your Tax Credits, you must do so on an immediate basis; so as to avoid running the risk of facing a fine.

Claimants are generally advised to inform the concerned department(s) immediately whenever there is a relevant change in circumstances impacting their Tax Credit or benefits claim. However, they can do so within a month of the change taking place so that their next Tax Credit payment is calculated accordingly. If you do not inform HMRC of a change even after a month has passed, you may be fined £300 as a penalty charge and overpaid Tax Credits will also be revoked. 

To avoid this penalty, it is best to keep your information updated on the portal. Otherwise, you can simply call, write a letter or email the authorities along with supportive evidence of the change. If you have missed the 1-month deadline, an online update or letter may not be the option for you; instead, you should call the Tax Credits helpline on 0345 300 3900 and inform them at the earliest. You may also want to note down the time and date of the call as well as the name of the person you spoke to so that you can maintain a record of it for future reference.

If a considerable amount of time has passed between the change of circumstance and the claimant informing of the change to HMRC, a fine of £300 becomes unavoidable; unless you can provide evidence of a serious matter (such as being faced with a severe illness) due to which the change could not be reported. If the penalty is still not revoked you may request the authorities to pay it in instalments.

Which Changes Need To Be Reported For Tax Credit Claim?

Changes that should be reported to HMRC with regard to Tax Credits include the following:

  • Your living circumstances or relationship status changes such as moving in with a new partner, getting married or forming a civil partnership, separation or divorce
  • There has been the death of a child or partner
  • Your working hours are reduced to less than 30 hours a week (combined hours in case of a partnership/marriage)
  • You move out of the UK for 8 weeks or more
  • You leave the UK permanently (this includes losing the right to reside in the UK)
  • You start working for less than 16 hours while claiming childcare costs
  • You (as part of a union) go on strike for more than 10 consecutive days
  • Your child stops going to childcare for at least 4 weeks
  • Your childcare costs stop, reduce by £10 or more a week, or claimants are getting help
  • Your childcare provider is no longer registered or approved
  • Your child moves out of home, goes into care or is taken into custody
  • Your child who is over 16 leaves approved education or training

How Can I Withdraw From Tax Credits?

Claimants can withdraw from receiving tax credits by either making a phone call to the HMRC or by sending them an email regarding their decision to withdraw. This should ideally be done before their tax credits are renewed for the next term around the 6th day of April. Should you request for a withdrawal after the renewal to your claim has been made, the department will not be able to proceed with your request for withdrawal and you will have to wait until the end of the financial year to reapply for a withdrawal from tax credits.

Claimants are sent a system-generated Withdrawal Confirmation Notice (form TC1013) in the month of February every year to confirm whether they will need to continue with their tax credits or will need a withdrawal. The form also informs them of the consequences of such withdrawal and indicated the Tax Credits helpline that they can contact to confirm their decision. Once the internal process is administered, you will receive a call from the authorities to confirm that your Tax Credits claim has been officially withdrawn and you will not receive future payments.

Once a withdrawal has been made, you will not be able to renew your claim for tax credits and will have to make a fresh application to claim them. A fresh application will only make claimants eligible for a 31 day backdated claim on their tax credits.

Conclusion:

The points discussed in this blog post make it quite clear that while overpaid tax credits may be irrecoverable by the authorities after a lapse of six years, the Limitations Act of 1980 will only protect debtors from being faced with County Court action. The HMRC can still recover overpaid tax credits in liaison with the DWP and reduce the benefits payments received by claimants. Therefore, it is in the best interest of debtors especially those on benefits, to agree upon a repayment schedule with the authorities so that the debt is cleared without a grave impact on their current benefits claim.

FAQs: Do I Have To Repay Tax Credit Overpayment From 10 Years Ago?

Can tax credit overpayments 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.

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.

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.

Do I need to renew tax credits if there are no changes?

If there are no changes to your income or circumstances, you do not need to do anything or confirm any information to HMRC (unless directly asked to do so). Your tax credits will automatically be renewed in such as case.

References:

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

Do you have an old tax credit debt?

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?

Fact Sheet – Write off debt

Report changes that affect your tax credits – GOV.UK

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