Why have I been overpaid?
There are many reasons why overpayments occur. It surprises a lot of people to find out that you can have a tax credit overpayment even if you do everything correctly.
Tax credits are designed to pay out first and double check the amount later. This means it is not certain that what you are getting is right. Remember those forms you receive every summer? Once the tax year ends in April, HMRC send you those forms to ask you to give them your actual income and confirm your details. Only then can they tell you how much you were really entitled to for the year that has just finished.
Sometimes you may have been overpaid even though your income or circumstances haven’t changed. Overpayments like this can occur when you don’t return the forms (called ‘renewal’ papers) to HMRC or you don’t report that you have become part of a couple because you would be entitled to the same amount.
Look at your award notices
Look back at your award notices and check the details on them. If any of them are wrong, this might help explain why you were overpaid. In particular, make sure the following are correct:
- Your National Insurance number(s) - if you are making a joint claim, there will be two numbers
- The number of hours worked
- Your income - this year and last year
- Whether you have a partner - if you do, you should be claiming as a couple. This means that both sets of details should be on the award notice
- The number of children you have
- Whether you are disabled and qualify for the disability element. (Disability for tax credits is different to disability for other things. It is important to check that you meet the tax credit disability conditions.)
- Whether you or a child claim Disability Living Allowance at the higher care rate or the enhanced daily living component of the Personal Independence Payment.
- Whether you claim the highest rate of Attendance Allowance.
- Childcare costs
- The payments listed at the end match what you were actually paid (check against your bank statements)
If you have checked all these details and think HMRC have got them right, look at the ‘Common reasons’ section on the next page. Does one of them apply to you?
Here we explain the most common reasons for overpayments, as well as how to find out if this is the cause of your overpayment.
1. Your income has gone up
HMRC may have paid you too much because they thought your income is lower than it actually is. Normally, if your income for this year is no more than £5,000 higher than it was last year, your award will not be affected. But there are still some rises in income that are not covered by that ‘buffer zone’. See point 8 below.
The amount your income can increase from one year to the next before it affects your tax credit award has varied a lot in recent years. In the tax years 2003-2004, 2004-2005 and 2005-2006 you were allowed a rise of only £2,500. For 2006-2007, 2007-2008, 2008-2009, 2009-2010 and 2010-2011 the figure was £25,000. For 2011-2012 and 2012-2013 you were allowed a rise of £10,000 before it affected your award.
To check for this you should look back at your award notices. Look at the income used and see whether you told HMRC your income was higher. It is always best to let HMRC know if your income is going up, even if it is by less than £5,000. That is because HMRC need to know what your income really is in order to pay you the right amount next year.
2. HMRC did not act on what you told them
You might have told HMRC about a change in your circumstances. (For example, that your son has left school, or that you are no longer working.)
If HMRC didn’t change your award straight away, you may have carried on receiving too much money. This will become an overpayment once the change is actually made.
When you report changes, it is a good idea to write down who you spoke to and when. If you haven’t done this don’t worry. Have a look on your award notices to see if the changes were made at the right time.
HMRC have 30 days to make a change once you tell them about something.
If they take longer than this, they should not ask you to repay any overpayment which builds up after the 30 days (unless they sent you a new award notice and you didn't tell them of their mistake within 1 month).
See I don’t think I should pay the money back. What can I do? for information about HMRC's responsibilities.
3. HMRC made an official error
If you miss the appeal time limit but think HMRC are wrong about the amount of tax credits they have given you because they have made a mistake you can ask them to look at it again. This kind of mistake is called 'official error'. The time limit for asking that the error is investigated is longer than the one for appeals. See Official error. You can send a dispute and official error request at the same time.
These overpayments are hard to find on your award notices. If you think that HMRC may have made a mistake on your award, you should try and get some advice. See How to find an adviser How to find an adviser.
4. Disability error
This mistake often happens when people are confused about what rate of Disability Living Allowance or Personal Independence Payment they receive.
There are questions on the claim form that ask if you or a child receive Disability Living Allowance at the higher care rate or the enhanced daily living component of the Personal Independence Payment. If you tick these boxes, HMRC award you extra tax credits because of your severe disability. If it later turns out that you were receiving a lower level of Disability Living Allowance or Personal Independence Payment, HMRC will take back this extra amount.
Check your award letter from the Department of Work and Pensions. This will tell you what level of Disability Living Allowance or Personal Independence Payment you receive.
Then check your tax credit award notice to see if it says you are in receipt of Disability Living Allowance or Personal Independence Payment and at what rate. It should match the rate on your Disability Living Allowance or Personal Independence Payment award letter. Similar rules apply if you are receiving Attendance Allowance.
5. HMRC say you didn’t send back forms
After April each year, HMRC send out renewal forms. These forms ask you what your income was in the year that has just finished. They also ask you to check that your details are correct. The form is your claim for the new tax year. If the form is not sent back to HMRC by the correct date, it can mean that your current tax credit award ends. All of the payments you have received since April will be treated as overpayments even if you would have been entitled to them if the forms had been sent back.
If you separated from your partner in the last tax year or early in the current tax year, you will each have to return a set of forms.
If you have gone on to make a new claim in just your name, you have to return forms for your old joint claim AND forms for your new claim.
Check your letters from HMRC. If your award ended because you did not renew you should have received a letter called a ‘statement of account’. This tells you that your tax credits have ended.
If you contact HMRC within 30 days of getting the statement of account letter, they should be able to renew your claim over the phone. This will cancel the overpayment.
After 30 days, you can only get your tax credit payments back into payment if you have a good reason why you did not renew. For example, because you were seriously ill, or your partner was seriously ill and you could not get someone to act on your behalf in time. Otherwise, you will be left with an overpayment to deal with even if you would have been entitled to the money if the forms had been sent back.
6. Wrong details on your award notice
If any of the details about you on your award notice were wrong, it might mean that HMRC have paid you too much in tax credits. This is why it is important to check your award notice each time you receive it and tell HMRC if there is a mistake. For example, maybe HMRC paid you for three children when you only have two.
Check all the details on your award notices to see if you can find anything wrong or anything that you told HMRC about but they did not do anything about.
7. Becoming part of a couple or splitting up with an ex
When you become part of a couple you need to tell HMRC straight away. You also need to tell them if you split up and are no longer part of a couple Your tax credit award normally ends on the date when your personal circumstances change. If you delay telling HMRC, everything you receive after that date will be an overpayment. Deciding whether you are part of a couple for tax credit purposes can sometimes be difficult. You should contact HMRC if you are unsure about this and make sure you keep a record of the phone call including the date, who you spoke to and what they said.
Check your award notice to see if you are claiming as a single person or with a partner. If you are claiming with a partner, their details should show on your notice.
This is a complicated area. If you have an overpayment because of this you should get advice. See How to make a complaint.
If you were late telling HMRC about a partner moving in or leaving and you went on to make a new claim straight away as a newly single person or couple, you might be able to have your overpayment reduced. See I was late telling HMRC about my partner for more information.
8. Income goes down
TTax credits are paid using your previous year’s income. If you think your income will be lower this year, you can ring HMRC and ask them to pay your tax credits on your new estimated income for the current year. This often means your tax credits will go up. They will only change the award if the fall in income is more than £2,500. If it is less than this your award will be paid using your previous year's income.
But if later in the year your income goes up again, it can mean you have an overpayment. This is caused by the way tax credits work out income across a full year instead of weekly or monthly.
Have a look at your award notices to see what income was used to calculate your tax credits. If you gave an estimate, you should see the word ‘estimate’ next to your income.
The later award notices will then show a higher income.