Tax credits overpayment

When I first set up in business a few years ago, I had no idea what my annual income would be.

Tax Credits were still relatively new, but they wouldn’t take an estimate of my income.

And I couldn’t give an exact income figure until my accounts were finished at the end of the tax year.

Which meant being able to provide an income figure that the Inland Revenue would accept, resulting in a default figure on the application.

The result was an overpayment of Tax Credits.

Luckily, once the situation was finally realised, the Inland Revenue had stopped demanding all overpayments be paid immediately. Instead overpayments had begun to be reclaimed from the Tax Credit awards themselves.

Everything seemed fine until this morning, when we suddenly received a demand for £6500 payable within 30 days, or else in 12 monthly instalments.

It turns out that my original claim had actually lapsed, so all overpayments to date were being sought.

The solution?

Simply re-register back on the Tax Credits system, which was no more difficult that calling again with either exact or approximate income projections.

Of course, in this instance I was both unlucky and lucky.

Unlucky in that a change of address had meant the original tax credits renewal form had gone astray, hence the demand for payment.

Lucky in that I can still work with the Tax Credit system to reduce the overpayment without having to suddenly pay off £6500.

However, not everyone is in the same boat, and we’ve reported previously on FM about problems people face with overpayment repayment demands.

If you do have difficulties with the Tax Credit system, the first port of call is the Tax Credit helpline number: 0845 300 3900

Additionally, you may find the following useful:

BBC Ask the expert: Tax credit overpayment

Advice Guide: Overpayment of Tax Credits (PDF)

Overall, while the Tax Credit system isn’t perfect, and there are still issues to iron out, hopefully the majority of people with a problem can work within the system to resolve it - rather than face an unexpected debt.

Discuss this in the Finance Markets forums

Story link: Tax credits overpayment