Withdrawal from tax credits means that you will need to reapply through a new claim and your previous one will not be renewable; should you wish to reclaim it after a few months’ time. Through this blog post, we will learn about how someone can withdraw from their tax credits as well as the conditions to be met for a withdrawal. In addition to this, we will also explore the consequences of a tax credit overpayment, the reasons for overpaid taxes, how to claim a refund and whether an overpayment can be written off.

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administered, you will receive a call from the authorities to confirm that your Tax Credits claim has been officially withdrawn and you will not receive future payments.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.

However, claimants must keep in view that their tax credits claim can only be withdrawn under the following conditions:

  • Their claim is at the pre-award status and no decision has been made regarding its approval or rejection.
  • The same claim has been made twice due to an operator error.
  • A withdrawal at post-award status can only be confirmed for the following financial year while payments for the ongoing year will continue.

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 When You Have Tax Credits Overpayment?

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.

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 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

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 discussion in this article makes it clear that claimants will be able to withdraw from their tax credits claim as conveniently as through a phone call or email. However, this withdrawal notice must be placed before their claim for the next financial year is renewed otherwise it will be postponed until the following year. Claimants will also need to be mindful of the fact that once their tax credit claim has been withdrawn, it cannot be renewed immediately and they will have to apply with a fresh claim; should the need arise in the future. 

FAQs: How Can I Withdraw From Tax Credits?

Can you withdraw from tax credits?

Yes, you can withdraw from tax credits. For this purpose, you must inform the HMRC before the 6th of April so that your claim is not renewed for the next financial term.

How do I cancel my child tax credit in the UK?

To cancel your child tax credit in the UK, you will need to fill out an online form and inform the Child Tax Credit office either by phone or through the post.

Does HMRC deal with tax credits?

Yes, HMRC deals with tax credits as well as income tax, tax payments and self-assessment returns.

What happens when tax credits stop?

Since Universal Credit is replacing six legacy benefits including tax credits, you will continue receiving benefits payments through your Universal Credit claim once tax credits stop.

How long does it take for tax credits to change circumstances?

Any change of circumstances should be reported to HMRC as soon as possible as they bear an impact on your benefits claim including tax credits.

References: 

TCM0139020 – Tax Credits Manual – HMRC internal manual – GOV.UK

Renewals « The annual cycle « How do tax credits work? « Guidance «

Tax credits update | CPAG

Discussion: Tax Credit Overpayment – Rightsnet

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

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?

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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