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Tax credits overpayments and official error

Published on 10 May 2004

In this third article on tax credits overpayments, we consider overpayments which arise because the Revenue or another Department has made an error. In some cases the Revenue will agree not to recover the overpayment: we consider when, and what arguments can be deployed in the claimant’s favour.

This is the final article in our series on tax credit overpayments. For the remaining two, follow the link at the foot of this article to the second of the series, from which you will be able to find the first.

In previous articles we looked at overpayments which can arise as result of changes in income and changes in circumstances. But sometimes the reason for a claimant receiving more tax credit than they were due will be that the Revenue, or another Government department, made an error. The Revenue have a policy about this, summarised in their Code of Practice on overpayments, COP26. The relevant part of COP26 is set out below (please scroll down to end).

There are three main cases where there has been ‘official error’ and the Revenue will not seek recovery of an overpayment. The first two types of situation are set out in COP26; the third we have gleaned from correspondence with the Revenue. They are:

  1. If the overpayment arises because the Revenue or another department has made a mistake, AND the claimant could reasonably have thought their award was right;
  2. If the claimant tells the Revenue about a change, and the Revenue fail to act on that information for a month or more, AND the claimant could reasonably think their award was correct;
  3. If a claimant has been given wrong advice by the Revenue, AND the Revenue’s records confirm this.


The Code of Practice raises a number of questions which we have put to the Revenue in correspondence, and some of their answers are considered in this article.

We are setting this out under the following headings:

  • When is it considered ‘reasonable’ for claimants to know that their award is wrong?
  • Where the Revenue have not acted on information provided by the claimant
  • Where the Revenue have acted on information provided by the claimant but the revised award is wrong
  • Distinguishing between Revenue error and claimant error
  • Wrong advice by the Revenue Helpline
  • Inland Revenue Code of Practice COP26

When is it considered ‘reasonable’ for claimants to know that their award is wrong?

The Code of Practice gives two examples of fairly obvious cases of error: where the amount of working tax credit being paid by an employer differs from that on the award notice; and where the award notice shows the wrong number of children. The Revenue say that these are the sorts of errors they would expect the claimant to spot – and it is hard to disagree with that, unless for particular reasons the claimant has difficulty in reading and understanding the award notice.

But we suspect that the majority of cases will not be so clear-cut. For instance, most claimants never see an official calculation of their award. Even if they did, few would be able to follow through the complex computation to decide whether the award was right or wrong. Most people think they can rely on whatever comes out of Government departments, and will trust what they are told in preference to their own judgment.

In these circumstances, LITRG believes that the Revenue ought to accept it as ‘reasonable’ for people to think that their award is right, if all they have to hand is an award notice which gives the right details about their income and circumstances. There are cases where claimants tell the Revenue what they should, when they should, and the resulting award is still wrong. Without an understandable computation of entitlement there is no real way for the claimant to check that their award is correct.

The Revenue have indicated to us that they will apply a reasonableness test when considering recovery of overpayments and not automatically seek recovery. In some cases therefore they will do this even if a mistake is evident.

LITRG view: We suggest that much will depend on how adept the claimant is at coping with Revenue paperwork. The Revenue should be encouraged, in applying the reasonableness test, to take the claimant as they find him or her, not assume any particular standard of literacy or numeracy. Where a mistake is not evident, we believe it will almost always be appropriate to press for the overpayment to be written off.

Where the Revenue have not acted on information provided by the claimant

Here, the Revenue impose two conditions that must be satisfied before they will concede an overpayment:

  • The Revenue have failed to act on the claimant’s report within a month; and
  • The claimant must reasonably think that their award is right.

The Revenue have told us that when they consider the reasonableness issue under this head, they look at a number of factors, including:

  • When the claimant reported the change;
  • Whether the overpayment was caused by a delay in processing, AND whether the claimant contacted the Revenue to tell them that the reported change had not been implemented;
  • Whether the claimant has received the new decision notice.
LITRG view: Again, the Revenue should be encouraged to stand in the claimant’s shoes when assessing the reasonableness issue, and not assume that because something appears on an award notice, the claimant must have read and understood. Where a mistake is not apparent from the award notice, we think there will be few cases where the claimant could reasonably have been expected to know that it was wrong.

Where the Revenue have acted on information provided by the claimant but the revised award is wrong

However, there may be cases where the claimant has told the Revenue about changes in their circumstances on time, and the Revenue do act on it, but the revised award notice does not correctly reflect what the claimant reported. When this occurs, the Revenue will apply the same tests as described above to determine the question of reasonableness.

Distinguishing between Revenue error and claimant error

There is still much unfamiliarity with the new tax credits system among all involved. In some cases, an overpayment may arise through error on the part of both the Revenue and the claimant and it may be difficult, if not impossible, to distinguish the elements of Revenue error from claimant error.

In such cases, LITRG believes that the only equitable solution is for the Revenue to give the claimant the benefit of the doubt.

The Revenue, in debate with us, have not gone quite that far, but have at least acknowledged that the problem exists. A claimant could expect the Revenue to analyse why the overpayment has arisen and if necessary apportion the responsibility between the claimant and the Revenue. In such cases the Revenue should explain their approach.

LITRG view: unless it is clear that the overpayment was solely a result of claimant error, the Revenue should be pressed to acknowledge their share of responsibility on the basis of their policy as set out above.

Wrong advice by the Revenue Helpline

Where wrong advice by the Revenue Helpline is claimed, a full examination of the case history records would be carried out and a decision made in the light of the evidence gathered. If records show that the Revenue had mistakenly given incorrect advice, any resulting overpayment would generally not be recovered.

LITRG view: Claimants should keep careful records of dates, times and duration of all calls made to the Helpline, and of the advice given.

Inland Revenue Code of Practice COP26

What happens if we have paid you too much tax credit?

Overpayments if we have made a mistake

‘We will not ask you to pay back an overpayment if it arose because we made a mistake and you could reasonably have thought your award was right. This would include cases where we instructed your employer to pay you the wrong amount of Working Tax Credit, provided you could reasonably think you were being paid the right amount.

‘Some mistakes by us that lead to overpaid tax credit may happen because you gave us some information and we did not act upon it. If you tell us about a change, you can expect to get a revised award notice from us within a few days. But if you tell us something and we do not act upon it within a month, and you could reasonably think your tax credit award was correct, we would not ask you to pay back the additional tax credit you were paid.

‘It would have to be reasonable to think that your tax credit award was correct. For example, if we were paying you tax credits on the basis of the wrong number of children, that is the sort of thing we would expect you to spot on your award notice and tell us about. And we would also expect you to tell us if your employer was paying you more tax credit than your award notice said you were entitled to.

‘In deciding whether it was reasonable to think your award was correct, we will consider all the circumstances of your case. We will take the same approach where the mistake that led to the overpayment was made by another Government Department.’


Contact Name: Robin Williamson (Contact tel: 0844 579 6700, Fax: 0844 579 6700)

Relevant Link: Link to second article in series

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