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Tax Credits Overpayments and an IVA

Tax Credits Overpayments and an IVA

Tax Credits Overpayments and an IVA

Tax Credits overpayments owed to HMRC are included in an IVA. Once the Arrangement is in place ongoing benefits payments continue as normal.

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Can Tax Credits Overpayments be included in an IVA?

If you have tax credits overpayments these are classed as an unsecured debt. As such they can be included in an IVA in the same way as all your other unsecured debts.

Once the Arrangement is agreed HMRC are legally bound into it in the same way as the other included creditors. They are no longer allowed to recover the overpayments directly from you.

Any deduction from your ongoing benefits for the recovery of the debt must stop. You will start to receive your full benefit entitlement once again.

After your IVA is agreed ongoing payment of tax credits will continue at the normal rate. This should be anticipated in the income and expenditure calculation.

Will HMRC agree to the IVA proposal?

Whether or not HMRC will accept your IVA proposal will depend on how much you owe them compared to your other debts. Also whether they are currently recovering their debt by making deductions from your ongoing benefit entitlement.

Where they are recovering what you owe by making deductions they will generally reject your IVA proposal. This is because they will be repaid in full by maintaining the status quo.

If they are one of your larger creditors (greater than 25% of your total debt) this will mean you will be unable to continue with an IVA. If they are smaller and can be out voted by the other creditors the Agreement might be approved.

Where an IVA is accepted by the majority of creditors HMRC must honour this (even if they rejected). Their tax credit debt is then included. Any deductions from your ongoing benefits must then stop.

Talk to us about starting an IVA to resolve your tax credits problem. We will help ensure you have the best chance of it being accepted.

What if your Tax Credits Overpayment Debt is in Joint Names?

If you are living with a partner or spouse your tax credits are likely to have been awarded on the basis of joint household income. Where this is the case your partner may also be jointly liable for any overpayment.

Where you both have joint liability but only you start an IVA this will not protect your partner. They will still be liable for the total overpayment debt. Deductions will continue to be made from ongoing benefits or they will be pursued for payment in other ways.

The solution in this senario is very often for you to both start a joint IVA. However your partner or spouse could consider using a different debt solution where this is more suitable for them.

If you are living with a spouse or partner you should check with HMRC whether they are jointly liable for any tax credits overpayments before starting an IVA.

Is an IVA the best solution for Tax Credits Debt?

An IVA is not always the best way to deal with tax credits overpayments. The suitability of the solution for you will depend on your wider financial circumstances.

Firstly you should consider how much debt you owe overall. If the overpayments are your only debt and are relatively low it might be best to simply allow deductions from ongoing benefits or to repay them directly yourself.

If you are not a home owner you may actually have nothing to lose by going bankrupt. Using this solution all your debts including any money owed to HMRC would be written off and your full tax credit entitlement would be re-instated.

Problems with a tax credit debts? Give us a call (0800 077 6180) or fill in the form below and we will be happy to explain your options.

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    4 thoughts on “Tax Credits Overpayments and an IVA

    1. Monika says:

      This is not strictly true, I have an IVA in pace 3 years and also an overpayment in housing benefit but still the council are refusing to accept my IVA they have taken me to court and say i still owe them the money, they are not having it at all. My IVA company have solicitors onto this, why is the law on IVA and housing benefit overpayment so sketchy? Can you advise or give me any positive feedback I could use.

      Many thanks

      1. James Falla says:

        Hi Monika

        The article above is in regard to Tax Credit overpayments. These are owed to HMRC and can definitely be included in an IVA.

        However I understand that your issue is with a Housing Benefits (HB) overpayment. The rules here are a little difficult to track down. However they do exist in the Government’s guidelines regarding HB overpayments (see the link below). The guide clearly states that as long as the debt was originally included in your IVA and the council were invited to accept the IVA in the same way as all your other creditors then the debt is included (s7.155).

        The guide also states that during the IVA HB overpayments can be recovered by making deductions from ongoing HB. However if you are no longer receiving benefits the only way of recoverey is through the IVA itself and any amounts outstanding have to be written off after the IVA is completed (s7.156). Even HB debts included in an IVA that have been caused by fraud must be written off once the IVA is completed (s7.161).

        Your IP should use these rules when discussing your situation with the Council. If your situation fits the rules then the council have no option other than to back down. The Court would be obliged to throw out their case. Who is your Insolvency Practitioner? I would have thought they would have been aware of this and used it to resolve this situation by now….. You can find the guide here (I suggest you show it to your IP): Housing Benefit Overpayment Guide You specifically need to look at Part 7 (Courts and Civil Proceedings)

    2. Kevin says:


      I left the matrimonial home in Feb 2012. I received a letter fron HMRC at my new home address in Scotland in April 2012 claiming that I owed £20k due to tax credit overpayment. I telephoned and was advised by HMRC that my wife was cooperating with them over repayment and I had nothing to worry about and shoud never hear from them again so long as my wife continued to cooperate.

      I heard nothing further from HMRC until Nov 2019 when they telephoned me first thing in the morning and effectively bullied me into agreeing repyment over a period of 10 years or so of the sum of £10k. So no contact regarding this debt for over 7 years! Is this something that would be covered by statute barring?

      1. James Falla says:

        Hi Kevin

        As far as I am aware there is no time limit for the collection of HMRC debt. This is the case whether the debt is due to tax arrears or tax credit over payments. As such it can’t become statute barred.

        There is more information about this here: When is debt statute barred?

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