Tax credit debts and how they are collected keep changing, which is why you should not ignore any letters you receive from HMRC. Read on for a breakdown of tax credit debt and UK tax advice, including self-assessment tax advice.
The Department of Work and Pensions (DWP) announced that a segment of tax credit debt was to be transferred from HMRC to DWP or, where applicable, the Northern Ireland Department for Communities (NI DfC). These outstanding tax credit overpayments would be collected by DWP or NI DfC.
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Table of Contents
Why is This Tax Credit Change Happening?
DWP and NI DfC have more options than HMRC to collect outstanding debts from individuals. They can collect outstanding debts from an individual’s pay using a direct earnings attachment (DEA), without taking the individual to court. HMRC is gradually reducing their tax credit operations.
Who Will the Change Affect?
This change may affect you if: You claimed tax credits in the past, you no longer receive tax credits, you have an outstanding tax credit debt not being repaid to HMRC, you are in employment and earned at least £5,200 in the previous 12 months. Tax credit overpayments are common. You should have been notified that you had an overpayment on your final tax credit award for the relevant tax year.
How Will I Know if the Change Affects Me?
HMRC will write to you if your debt is to be transferred. The letter will state the outstanding debt and explain what will happen. DWP or NI DfC will contact you about your debt and give you 21 days to discuss repayment arrangements. They may decide to pursue recovery via a direct earnings attachment. Seek UK tax advice or Self-assessment tax advice.
What if I Don’t Think I Owe the Money?
The debt may be from some time ago so time limits associated with disputes and appeals will have passed by the time the debt is transferred. A late request or an official error challenge may be possible. You should consult a specialist welfare rights adviser.
What if the Debt is a Joint Debt?
If the overpayment arose on a joint award and you are no longer part of a couple, HMRC will apportion the outstanding amount. If you are still part of the same couple, you will both be eligible for transfer. You will receive individual communications to advise that the debt has been transferred and will now be considered individually. The debt will be apportioned on a 50/50 split.