DWP can collect tax credit debt in two situations:
- When a tax credit claimant transitions to Universal Credit (UC). The debt will be transferred from HMRC to DWP. DWP will then reduce the UC to collect the tax credit debt. Even if the UC claim ends, the claim remains with DWP to collect using their usual collection procedures.
- If HMRC passes the debt on to DWP for collection – HMRC has a general power to assign tax credit debt to DWP
NOTE: In Northern Ireland debt is collected by the Department for Communities (NI DfC). References to DWP should be read as DfC for applicants in Northern Ireland.
If the blame hasn't passed to DWP/DfC - see our mainPage Handling Overpayment Debt.
Quick links
Who should claimants contact about their tax credit debt?
Can DWP collect old tax credit debt?
Recovery of Universal Credit tax credit debt
Transfer of non-UC tax credit debt to DWP/DfC
- Why transfer tax credit liability to DWP/NI DfC?
- Who is affected?
- How do applicants know if their tax credit liability has been transferred to DWP?
- What is a direct garnishment?
- Are there other ways to pay off the debt?
- What if beneficiaries cannot afford the repayment?
- What if applicants disagree that they owe the money?
- What if it's a joint debt?
- The debts are many years old, do they still have to be repaid?
Who should claimants contact about their tax credit debt?
When debt is transferred between HMRC and DWP/DfC it can be confusing for applicants to know who to contact. The table below shows who to contact depending on your concern/question:
| output | Who to contact |
| explanationabout how/why the overpayment occurred | HMRC (Tax Credits) – Note that DWP/DfC will continue to recover even if an explanation is requested. |
| Request the overpayment through dispute, appeal or official error | HMRC - Note that DWP/DfC will proceed with recovery even if a claimant disputes the overpayment or disputes it on official error grounds. If an appeal is lodged, HMRC should notify DWP/DfC to stop collecting the claim. |
| Debt allocation issues for joint claims | HMRC |
| Hardship applications/payment difficulties – e.g. B. Reduction in percentage of recovery from a UC grant, suspension of recovery | DWP/DfC |
| Direct questions about the garnishment of earnings | DWP/DfC |
Can DWP collect old tax credit debt?
Applicants may come to you with very old tax credit debt, often they will say they have not heard from HMRC for many years. It is not uncommon for debt to be over 10 years old.
In theory, the Limitation Act 1980 applies to tax credit debt in England and Wales. There is some confusion in this area as the law does NOT apply to tax debt. This is confirmed in theHMRC DM manual. The law provides that debt collection should be initiated within six years of the due date of the claim. In most cases, this prevents HMRC from bringing an action in District Court, but does not generally stop collection of current benefit awards or from the debt transfer to DWP for collection (either on Universal Credit or separately).
Whether this six-year rule applies is legally complex and advice must be sought from a legal and/or debtor specialist.
The rules are different inScotland and Northern Ireland.
Recovery of Universal Credit tax credit debt
Pursuant to the Welfare Reform Act 2012 and subsequent regulations, DWP has the authority to collect a tax credit overpayment liability on UC payments. Once the UC award ends, DWP remains at fault and DWP handles payment deadline and hardship negotiations.
The applicant's journey in these cases is explained in more detail in oYour UC section.
Transfer of non-UC tax credit debt to DWP/DfC
In February 2017, the Department for Works and Pensions (DWP), then Foreign Secretary, announced that part of the tax credit debt would be transferred from HMRC to the DWP or, where applicable, the Department for Communities of Northern Ireland (NI DfC). . The debt – consisting of outstanding tax credit overpayments – would then be collected by DWP or NI DfC, as appropriate.
This exercise is separate from the transfer of tax credits when someone claims Universal Credit. As part of this process, the individual may not claim any DWP benefits and this may be their only interaction with DWP
- Why transfer the tax credit to DWP/NI DfC?
DWP and NI DfC have some different legal powers than HMRC which means they have more options to collect outstanding debts from individuals. One of the main differences is that DWP and (NI DfC) can collect outstanding debts directly from a person's salary using a direct income garnishment without having to take the person to court first.
Transferring the outstanding tax credit debt to DWP (or NI DfC) to collect the money instead of HMRC allows them to take advantage of this option. This is of course also in line with longer term changes at HMRC as they are very gradually reducing their tax credit operations as more people move to Universal Credit (UC).
- Who is affected?
This can affect anyone who has claimed tax credits if all of the following are true:
- You have claimed tax credits in the past
- You no longer get tax credits (or get them, but the old debt can't be recovered from the new bounty)
- You have an outstanding tax credit that is not being returned directly to HMRC
- HMRC records show they have been in current employment on the last 12 months with a minimum fixed annual salary of £5,200
HMRC expects to transfer around 600,000 outstanding tax credit debt to DWP or NI DfC as part of this project.
tax creditoverpaymentsare very common, many built into the design of the system. Applicants should have been informed that they had an overpayment on their final tax credit for the relevant tax year. However, in our experience many people have difficulty understanding the award notices and often such debts have been gradually collected from current payments and may have gone unnoticed.
It can come as a shock when someone leaves tax credits and finds they have a large overpayment debt. But even if they didn't receive or understand the final payout notice, HMRC should have written to them when their tax credits ended to demand that the debt be paid back straight away - commonly called a payout notice. However, in some cases it may be several years since applicants have been contacted by HMRC about these debts. (See below for more information on therecovery of old debts).
- How do applicants know if their tax credit liability has been transferred to DWP?
As part of the Debt Transfer Agreements, HMRC will write to applicants if their debt is to be transferred to DWP (or NI DfC) (Letter TC1131, not UC). HMRC has said the letter will state the amount of outstanding debt and explain what will happen next.
After issuance of letter (TC1131 non-UC) from HMRC, DWP or NI DfC if they wish to discuss their case or draw up a repayment plan. Applicants have up to 21 days to make contact and if they fail to do so within that time period, DWP and NI DfC will write to them and their employer to advise them that the direct income garnishment lawsuit should be initiated.
- What is a direct garnishment?
A direct income garnishment, sometimes referred to as an "income garnishment," is a legal mechanism to collect outstanding debt directly from income. This means that a creditor (the person owed the debt) can require the debtor's employer (the person owed the debt) to take payments to repay the debt directly from the debtor's income. In most cases, direct garnishments are established through court agreements, but by law, DWP and NI DfC can establish direct garnishments without going through a court process.
Payments are deducted from income after tax and NS. Employers can also add a £1 handling fee to any payment collected. There are strict limits on the amount of payments that can be deducted directly from income, although these are based on a percentage rather than a fixed amount and there is a sliding rate based on the amount of gross pay. In any case, at least 60% of the net income must remain for the individual.
Some detailed information on direct income garnishments can be found on theGOV.UK-Website.
- Are there other ways to pay off the debt?
DWP (or NI DfC) should contact the individual to agree and make the most appropriate arrangements to repay the debt. This could be through:
- Repayment of the amount to DWP (NI DfC) in a lump sum
- Reduction of the person's other benefits
- Agreeing on a repayment plan
- ask the employertake money from their earnings
- hire a collection agency to collect the money
- What if beneficiaries cannot afford the repayment?
If applicants cannot afford to repay the debt, they must discuss this with DWP or NI DfC. It may be that another recovery method is appropriate or that arrangements are made for the DEA to begin after other deductions have ceased. A DEA should not be established where benefit deductions are in place.
- What if applicants disagree that they owe the money?
The debts may date back some time. This means that by the time the blame passes to DWP (NI DfC), the strict time limits associated with disputes and appeals will most likely have passed, leaving no formal avenue of dispute other than a complaint.
(Video) Episode 3 - Credits and DeductionsIn some cases, a late complaint or official error challenge may be possible.
If the claimant has any disagreement as to how the debt arose, how much was paid to HMRC or how the outstanding value was calculated by HMRC before it was transferred to DWP and NI DfC, they should call HMRCTax Credits Helpline.
If you have a question about the amount collected by DWP and NI DfC, future collections, or the current outstanding balance, you should contact DWP/NI DfC. It may happen that individuals contact the wrong department, but on receiving such a request DWP and NI DfC and HMRC staff should have the appropriate guidance and contact details to direct the requester to the correct contact.
- What if it's a joint debt?
If the overpayment has occurred on a joint award and the person is no longer part of that couple, HMRC will split the outstanding amount that needs to be collected. This is usually done on a 50/50 basis. If the person does not agree with the apportioned amount, they should contact HMRC on receipt of the TC1131 to discuss the overpayment amount.
If individuals remain part of the same couple, both individuals are eligible to transfer to DWP/NI DfC. Both receive individual notices to let them know their debt has been transferred and will now be reviewed on an individual basis. The debt is split 50/50. Again, HMRC should be contacted if the person does not agree with the debt being split on a 50/50 basis.
- The debts are many years old, do they still have to be repaid?
In England and Wales, the Limitation Act 1980 provides that debt collection should begin within six years of the debt becoming due. Tax debts are not covered by this law, but theoretically overpayment debts for tax credits are. In most cases. This prevents HMRC from taking action in District Court but does not generally stop recovering current benefit awards.
The law as to whether this six year rule applies is complex and anyone who thinks it might apply should seek professional legal and/or debt advice.
Last checked/updated on July 1, 2022
FAQs
What is HMRC overpayment? ›
You might be overpaid tax credits if: there's a change in your circumstances - even if you report the change on time. you or the Tax Credit Office make a mistake. you do not renew your tax credits on time.
How much can DWP take for an overpayment? ›The maximum amount your employer can give the DWP is 20% of your wages - and this is only if you're paid £2,240.01 or over a month after tax. This increases to 40% if you were overpaid because you deliberately gave the wrong information, known as 'fraud'.
Can DWP claim overpayments? ›The Department for Work and Pensions ( DWP ) can recover benefit overpayments from a person's estate. An overpayment could have happened because, for example, the person who died: had more savings than they declared in their benefit claim. had not declared an income.
How far back can DWP investigate? ›2023. The DWP can only claim overpayments from the last 6 years. But, there are some exceptions.
How do I dispute HMRC tax credit overpayment? ›The best way to tell HMRC you don't think you should pay back an overpayment is to fill in a dispute form on GOV.UK. Filling in the form makes it easy to include all of the information HMRC needs - and you save the cost of postage. Visit your nearest Citizens Advice if you need help with the dispute form.
How do I contact HMRC about overpayment? ›0345 302 1429
If your call is not urgent, you can find out information in: the official HMRC app.
DWP discretion to waiver (write off)
The DWP can agree to waiver (write off) the overpayment. However this will usually only be done in exceptional circumstances where recovery action will result in severe welfare issues for you or your family. The DWP will also look into the circumstances of the overpayment.
You normally have three months to do this. HMRC can also continue to reclaim tax credit overpayments while they review your dispute.
How do I contact DWP about overpayments? ›- Telephone: 0800 916 0647. Textphone: 0800 916 0651. Relay UK (if you cannot hear or speak on the phone): 18001 then 0800 916 0647. ...
- Telephone: 0800 169 0140. Textphone: 0800 169 0286. ...
- Textphone: 0800 916 0651. NGT text relay (if you cannot hear or speak on the phone): 18001 then 0800 916 0647.
Your benefit payments will be reduced until you've paid back the money. You can use this service to: check how much you owe. check when you will have repaid the money.
How do you fight the DWP? ›
...
Asking for a mandatory reconsideration
- the date of the decision.
- specific reasons why you disagree.
- your name, address and National Insurance number.
You'll get a letter from DWP Debt Management explaining how to repay and manage benefit money you owe. You can pay back the overpayment in full or set up regular monthly payments. If you're in Northern Ireland, contact the Department for Communities Debt Management service.
How do you tell if DWP are watching you? ›If the DWP is going to commence a formal investigation against you, they will notify you via post, telephone, or email, depending on what information they have available for you. The vast majority will receive this information via post.
What happens if DWP investigate you? ›Your benefit may be stopped while you're investigated. You'll get a letter telling you about this if it happens. You may be visited by Fraud Investigation Officers ( FIOs ) or asked to attend an interview to talk about your claim - this is called an 'interview under caution'.
Do HMRC and DWP share information? ›HMRC. DWP and HMRC work very closely together, and share information often. This is because benefits and pensions are affected by how much you earn and the National Insurance contributions you have paid.
What is the tolerance for an overpayment HMRC? ›When these under or overpayments are low – within a tolerance of £49.99 or less underpaid or £9.99 or less overpaid – they are not corrected through the tax system as it is not cost-effective. While this has been the case for many years, the ATS is expected to make this more visible to the public.
What happens if you don't pay back overpaid tax credits? ›You might be contacted by bailiffs if you don't pay any money back. HMRC can also take money straight from your bank account if you owe them more than £1,000 - and you'd be left with at least £5,000 in your account.
What happens if HMRC makes a mistake? ›You can ask HM Revenue and Customs ( HMRC ) to cancel tax you owe ('arrears') if you think they've made a mistake because both of the following apply: they did not act on information they had. there was a delay in HMRC asking you for the tax.
How do I clear my HMRC debt? ›Contact HMRC
You need to agree a regular payment to clear the debt. You should offer the amount shown in your personal budget after all of your bills and living expenses are covered. Don't offer a payment that you can't afford. You can call HMRC on 0300 200 3300.
Income tax, VAT and capital gains tax debts to HM Revenue & Customs don't have a limitation period. This means HMRC can take you to court for these debts even if they date back many years.
How do I contact DWP debt management? ›
Contact details for DWP Debt Management
Telephone: 0800 916 0647, Textphone: 0800 916 0651. More information on the Gov.UK website.
After six years without contact or payment regarding the DWP debt, the amount can be statute-barred. This means that the courts can't take action against you for the money. However, the debt isn't written off. DWP can still take money from your benefit payments to recover the debt.
How long does a DWP investigation take? ›DWP investigations can take anywhere from a couple of weeks to a couple of years in the most serious of cases.
How long do DWP have to prosecute? ›A prosecution for an offence under s112 of the Social Security Act must be brought within 12 months of the offence becoming known to the DWP. This is because it is a summary offence which can only be tried in the Magistrates Court.
How far back can HMRC investigate tax credits? ›HMRC will investigate in detail and retrospectively based on the case and how serious it is. If they suspect deliberate tax evasion, they can investigate as far as 20 years.
Why would DWP say I owe them money? ›When you're no longer eligible for any benefit you're receiving and do not inform the Department for Work and Pension, you owe some money to them. In fact, repaying DWP overpayments is considered to be very important. To account for the overpayment, the DWP could decide to take an amount from your benefit.
How do you fight overpayments? ›How do I appeal the overpayment? You must file SSA Form 561, "Request for Reconsideration." You can get this form at your local SSA office, ask for one by phone, or download it online. You can also file a Request for Reconsideration online. You should turn the form in with evidence showing SSA did not overpay you.
What is the procedure to resolve an overpayment? ›- Example: Using Credit Balance Adjustment to Apply an Overpayment to a Subsequent Invoice.
- Example: Using a Negative Invoice Charge to Apply the Overpayment as a Credit to a Future Invoice.
If you've already asked for mandatory reconsideration and the Department for Work and Pensions (DWP) haven't changed their decision, you can appeal to a tribunal. The tribunal will look at your reasons and make an independent decision. It's overseen by a judge and separate from the DWP.
Would I still be prosecuted if I agree to pay back overpayment? ›Such a penalty will be offered where you have been overpaid benefit and the amount is recoverable and you caused the overpayment and there are grounds for prosecuting you for the offence. If you agree to pay the civil penalty as an alternative to prosecution you will not be prosecuted for the offence.
What happens if you disagree with a decision made by DWP? ›
If the DWP or HMRC don't change their decision, or you disagree about how they've changed it, you can usually appeal to a tribunal. The DWP or HMRC will send you 2 copies of a letter to tell you the outcome of the reconsideration - this is called a 'Mandatory Reconsideration Notice'.
How do I appeal against a DWP decision? ›You can appeal on GOV.UK. You'll need the date on your Mandatory Reconsideration Notice. If you've lost your Mandatory Reconsideration Notice, contact the DWP and ask for a copy as soon as possible. If you can't apply online, you should fill in and send a form called form SSCS1.
How long does it take for DWP to deal with a complaint? ›A dedicated member of our Complaints team will then contact you within 15 working days, usually by phone, to talk about your complaint and agree how to investigate it. They will tell you the outcome or when you can expect a response, if it will take longer.
What debt collectors do DWP use? ›CCSCollect works with DWP to collect the overpayment of benefits and allowances including: Housing Benefit. Council Tax Benefit. Child Benefit.
What triggers a DWP investigation? ›As soon as there is enough evidence of potential fraud, the DWP will launch an official investigation and notify you. DWP investigators are allowed to gather many types of evidence against a potentially fraudulent claimant.
Does the DWP know about your bank accounts? ›DWP could monitor your bank account and social media activity at any time in fraud crackdown.
What powers do the DWP have? ›The Department for Work and Pensions (DWP) is responsible for welfare, pensions and child maintenance policy. As the UK's biggest public service department it administers the State Pension and a range of working age, disability and ill health benefits to around 20 million claimants and customers.
Is a DWP compliance interview serious? ›If you have been invited to a DWP compliance interview, do not ignore it. Whilst it does not necessarily mean that you will face a criminal prosecution, this could be the first step that the DWP takes to build their case against you.
Should I be worried about a DWP compliance interview? ›Undergoing a DWP compliance interview can be a stressful experience. However, understanding your rights and gathering the necessary evidence should give you the best possible chance of a successful outcome for your application.
Does HMRC track your bank account? ›HMRC has a shared service to check bank account details are correct. Other government departments and local authorities could collect your bank details from you, then check them with our shared service.
Do HMRC investigate people? ›
Obviously, HMRC will look to investigate if there is evidence of fraud or criminal wrongdoing, but a range of innocent behaviours may also look suspect until they are properly explained. For example, perhaps you have high expenses compared to your income, or you are always late submitting your tax return.
Why would I get a letter from HMRC? ›You may get a letter from HMRC asking you to contact us about your repayment claim. We may ask you to send more information to verify your claim. You must respond to the letter so we can make any repayments owed to you as soon as possible.
Do I have to pay HMRC overpayment? ›If you have a tax credits overpayment you must pay back, you should deal with it as soon as possible. While having to pay back money can be worrying, there are lots of ways to pay HM Revenue and Customs (HMRC) - including in instalments.
Why do I owe money to HMRC? ›HM Revenue and Customs ( HMRC ) will collect the tax you owe over the next year. This will happen automatically if you: pay Income Tax through an employer or pension provider. earn enough income over your Personal Allowance to cover the underpayment.
Why do HMRC owe me money? ›You might get a tax calculation letter if you either owe tax or are owed a refund because you: were put on the wrong tax code, for example because HMRC had the wrong information about your income. finished one job, started a new one and were paid by both in the same month. started receiving a pension at work.
Why have I received a payment from HMRC? ›If you receive tax credits from HMRC or a qualifying low income benefit from DWP, you will receive a Cost of Living Payment from DWP or HMRC. If you also get a qualifying disability benefit, you may receive an additional Disability Cost of Living Payment from DWP.
What information does HMRC share with DWP? ›DWP and HMRC can use the same reference number to identify people – your National Insurance number. DWP and HMRC are jointly responsible for deciding how National Insurance numbers can be used, who can use them, and the other personal information associated with them.
What happens if you dont pay HMRC debt? ›If you've received a bill from HM Revenue and Customs (HMRC) that you can't pay, it's important to contact them as soon as possible to try to come to an arrangement. If you don't, and your bill remains unpaid, HMRC will start proceedings to recover the money.