Tax credit overpayment change introduced

A number of changes relating to the way that tax credit overpayments are dealt with have come into force from 6 April 2016. Claimants earning over £20,000 may see a cut in payment as HMRC seek to recover overpayments at a higher rate, according to Low Incomes Tax Reform Group (LITRG).

The highest rate at which on-going payments are reduced in order to repay debts will rise from 25% to 50%. This will result in individuals paying back overpayments at a faster rate while simultaneously seeing their tax credit payments fall.

Further tax credits changes coming into effect are:

  • tax credit income disregard – the limit by which an household’s income can rise before it affects tax credit entitlement has reduced from £5,000 to £2,500
  • tax credit taper – rising from 41% to 48%
  • tax credit threshold – tax credit income threshold has been reduced from £6,420 to £3,850. Universal credit will be reduced to £4,764 (those without housing costs), £2,304 (those with housing costs) and removed from non-disabled claimants without children.

LITRG has urged HRMC to offer protection from the 50% rate rise for those with childcare costs and disability tax credits.

Anthony Thomas, chairman of LITRG, said:

“We fully support the need for HMRC to recover overpayment debt but this should not be at such a rate that it has the potential to plunge people into serious financial hardship. 

“This change is likely to catch people out as they may not be aware that their payments are about to reduce by an additional 25%. The cliff-edge income threshold means it is going to affect families with household income of more than £20,000 whatever their circumstances.”

Talk to us today to discuss your income.