Overpaid tax credits adding to UK debt problem

The scale of the debt problem in the UK has been brought into sharp focus recently. The number of people seeking help with the payment of their priority bills, such as council tax, has rocketed in recent months, despite claims that the nation is emerging from the recession that followed the global financial crisis in 2008.

Although we have been bombarded with news of the most common types of debt and the impact they are having, it is important that we do not overlook other sources of debt. One such source that is gaining prominence is overpaid tax credits. According to new figures from the Citizens Advice Bureau, Wales has been particularly affected by this in the last three years with a sharp increase in the number of people experiencing debt problems as a result of overpaid tax credits.

Working tax credits are payments made to supplement the earnings of lower paid workers, however this can result in overpayments if a recipient’s income rises unexpectedly or there is an error from HM Revenue and Customs (HMRC).

Research from the charity has revealed that more than 1,300 people in Wales contacted them over the issue in 2013/14, amid claims from HMRC that overpayments had reduced since 2012. The extent of the problem has left some unexpectedly owing thousands to the Inland Revenue. Not only can the amount owed be huge, but the fact that debtors often are given little, if any, notice that they are in arrears can be incredibly stressful.

One nurse from Pembrokeshire told BBC Wales of her horror at learning that she owed £10,000 dating back to 2009; having had no idea whatsoever that she was in any kind of debt.

“We received 10 letters in one day which indicated we had an overpayment for each year dating back five years for amounts between £2,000, £3,000 and £400 – totalling £10,000,” she said.

“They asked us to pay them back within a month. It was shocking, absolutely shocking. I didn’t know what to do.”

Data from Citizens Advice revealed that 918 people visited a bureau with an issue about debt relating to overpayment of tax credits in 2010/11, a figure which has increased by 45% to 1,329 in 2013/14. In England, there has been a 52% increase from 12,024 in 2010/11 to 18,273 in 2013/14.

Despite the disclosure of such alarming figures, people owing money because of overpaid tax credits should not automatically assume they have done something wrong and it is always worth getting advice because, in some cases, the debt can be successfully challenged.

HMRC has also sought to reassure those who have received tax credits, saying: “If an overpayment occurs as a result of HMRC’s error, claimants do not need to repay the overpaid money. An overpayment only needs to be repaid if a claimant has failed to meet their responsibilities in telling HMRC of any changes in circumstance.”

CTA is an independent provider of free advice for all kinds of debt problem. If you have received a letter indicating that you owe money relating to overpaid tax credits and would like help regarding what to do next, or you would like to speak to someone about another type of debt issue, contact CTA today.

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