Money Mensch: Receiving the wrong tax credit could prove costly

By Martin Lewis, March 18, 2010
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If you work or have children you may get tax credits, though the name is a misnomer as it is nothing to do with tax, it is just a payout. Even those with family income of up to £60,000 can be eligible and it can be big money for some - £1,000s a year - especially for those who pay for childcare.

However, there is a hidden nightmare in the tax credit system. This is commonly called "overpayments", though a better phrase would be "tax credit debt".

The problem stems for those who are being paid more tax credits than they should be, as then they need to give the money back. Yet as it is virtually impossible to know what the right payout is many will have already spent the cash, which is why overpayment scenarios can cause nightmares. The biggest reason for it is a change in circumstance, including moving in (or out) with a partner, children hitting 16 or 18, a rise or fall in income, a change in childcare costs or the number of hours you work a week.

As I commonly yell on the telly, the simple way to avoid this is, if anything changes, "TELL 'EM, TELL 'EM, TELL 'EM". If you have told them of changes and are still overpaid you can keep the cash.

For belt and braces, when you call up to give them the information, always take notes of who you spoke to, where and what you told them in case of a dispute.

If you have been overpaid and need to fight it, see my full guide at www.moneysavingexpert.com/taxcredits

    Last updated: 12:31pm, March 18 2010