Recovery of overpaid tax credits

Produced by Tolley

The following Personal Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Recovery of overpaid tax credits
  • Migration of tax credits to Universal Credit
  • Overpaid tax credits
  • Restriction of future awards
  • Direct repayment of overpaid tax credits
  • Direct earnings attachment
  • In-year overpaid tax credits

Migration of tax credits to Universal Credit

New claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported.

See the Universal credit guidance note.

Overpaid tax credits

Tax credit awards are made provisionally and paid to claimants. The award is only final when the renewal is completed after the end of the tax year. The payments received by claimants are always based on the previous tax year’s income and, because of this, when the actual income for the previous year is calculated, it can produce underpayments or overpayments in respect of the year just ended.

When the award is finalised for a year, the actual income is compared with the prior year’s income and an adjustment is made to the award. In order to minimise the impact fluctuations of income have on claimants, certain increases and decreases in income are ignored. This is known as the ‘income disregard’. For more information, see the Finalising the tax credit award guidance note.

Where tax credits have been overpaid in respect of prior years, the overpayment is recovered in one of three ways:

  1. restriction of future awards of tax credits

  2. direct repayment where the claimant is no lo

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