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.

  • Can tax credits overpayments be included in an IVA?
  • Will HMRC agree to the proposal?
  • What if the overpayment debt is in joint names?
  • Is an IVA the best solution for these debts?

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Can Tax Credits Overpayments be included in an IVA?

Even though tax credits overpayments are owed to HMRC they are still an unsecured debt. As such they can (and in fact must) 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 all your other creditors. They are no longer allowed to recover the overpayments directly from you.

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

After you start an IVA ongoing payment of tax credits will continue at the normal rate. You must anticipate this in your income and expenditure calculation.

Will HMRC agree to the IVA proposal?

Creditors will normally accept an IVA proposal if it is put forward by a reputable company and clearly shows you making your best effort to repay what you owe. HMRC is no exeption to this.

The proposal will highlight the benefit of your creditors accepting the Arrangement. It will show that they are likely to get more of their money back than if you used an alternative solution such as Bankruptcy.

If your tax credits debt is less than 25% of the overall amount you owe then even if HMRC disagree with the proposal they are unlikely to be able to block it. As long as 75% of your creditors (by value) say yes then even those who disagree are forced to accept it.

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 a joint household. 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 it 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 their repayment with deductions from ongoing benefits or to repay then directly yourself.

You also need to consider whether you can afford to sustain the required monthly IVA payment. There may also be additional implicartions to consider if you are a home owner.

Speak to one of our experts before making a decision to start an IVA. We can help you decide whether it is the right solution for you.

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2 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. 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)

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