Tax Credits are generally considered to be a benefit in the UK and can either be claimed as Working Tax Credit or Child Tax credit; depending on the income and circumstances of claimants. Through this blog post, we will learn bout the consequences of forgetting to inform HMRC of a change in circumstances that may bear a direct impact on one’s tax credit claims. In additio to this, we will also discuss how overpaid tax credits can be repaid, what to do if you are unable to pay back overpaid tax credits and whether overpaid tax credits can be written off.

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.

There is a possibility that once you report the change to HMRC, they will ask you for further details or supportive documents as evidence. This is called a “compliance check”. Once this is done, HMRC will send you a letter to confirm the change of circumstance, how it will impact your Tax Credits and the new amount (this may be higher or lower than your previous payments) that you can now expect to receive from them.

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 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

What Happens If You Have Been Overpaid Tax Credits?

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%

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

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 entirely 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.

Conclusion:

The detailed discussion in this article makes it quite clear that it is imperative that claimants inform HMRC of a change in their income and circumstances on an immediate basis. If they fail to do so, there is a 1-month deadline that can be adhered to without having to face a penalty. After the lapse of this period, claimants may not only have to return overpaid tax credits but will also be faced with a fine of £300.

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

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.

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.

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.

References:

Report changes that affect your tax credits – GOV.UK

Check if a change affects your tax credits – Citizens Advice

Tax credits penalties

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

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?

What was missing from this post which could have made it better?

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.