What if I have a tax credits overpayment?

Updated on 13 April 2023

Tax basics

Overpayments and underpayments are a normal part of the tax credits system. This is because when you receive a tax credits award, the initial award and payments are provisional. This initial award is based on your circumstances and previous year’s income or, adjusted in-year based on an estimate of your current year’s income.

Illustration of a tax credits documents and some coins

Usually the amount of tax credits you are actually entitled to for a tax year is not decided until the award ends and HMRC review your actual income and circumstances for the year. HMRC will then make their final decision about your entitlement for the tax year just ended. At that point, HMRC compare what they have paid you with what you were entitled to and if they have paid you more than your entitlement, you will have an overpayment. If they have paid you less than you were entitled to, you will have an underpayment.

This is normally done after the end of the tax year for which tax credits have been paid, but if you have claimed universal credit (UC) in the same tax year as you claimed tax credits, HMRC will usually finalise your tax credit award during the year. This is called in-year finalisation.

We explain how overpayments occur, how to challenge an overpayment and how to pay back an overpayment in our tax credits and benefits section.

You will also find information on what to do if you are finding it difficult to repay an overpayment as well as links to more detailed information.

Tax guides

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