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Paying Back Tax Credits in Instalments – Complete Guide

Paying Tax Credits In Instalments

For free and impartial money advice and guidance, visit MoneyHelper, to help you make the most of your money.

Tax credits overpayments can be quite worrying as you definitely need to deal with them as soon as possible. 

HM Revenue and Customs (HMRC) have set up a number of different ways through which you can pay them and this includes in instalments.

In this post, I’ll be detailing how you can pay back your tax credit overpayments through instalments and what approach you should be taking.

How do I Pay HMRC?

When you first receive a letter from HMRC informing you of your tax credit overpayment, it’ll have details about the overpayment as well as information about how they want you to pay them back. 

If your tax credits payments are still in place then usually, HMRC will take the tax credits you owe from your future tax credit payments. 

This would mean that you would receive reduced payments from HMRC until your tax credit debt has been paid off. 

You will be required to pay HMRC directly if: 

  • You no longer receive tax credits
  • The overpayment that was made was for a joint claim and now, you’re making a single claim
  • The overpayment that was made was for a joint claim and now, you’re making a new joint claim but with a different partner.

If you’re having trouble finding the details of your overpayment by HMRC, then you can call the tax credits helpline to find out information about it. 

The HMRC tax credits helpline is 0345 300 3900 with the timings being 8am to 8pm on Monday to Friday, 8am to 4pm on Saturday and 9am to 5pm on Sunday. 

When you make any such call to HMRC or any other organisation, make a note of the date and time when the call was placed. Also ask and take note of the person that spoke to you over the phone. You may need this information later on if a problem arises with your HMRC overpayment. 

end of the tax year debt income

Tax Credits and Universal Credit (UC) 

If your tax credit benefits have been replaced by Universal Credit, then it’s quite likely that HMRC may have asked the Department for Work and Pensions (DWP) to lower your Universal Credit payments in order to repay your tax credit debts. Please note that they are allowed to do this without communicating it with you first. 

You will receive a letter from HMRC detailing what your tax credit debts are and how much of an amount is being taken off from your UC every month. 

If you’re unable to manage your finances and would like a smaller amount taken off of your UC, then you can contact your local jobcentre and request this. You should be able to secure smaller amounts being taken off for a longer period of time.

Satisfied with HMRC 

If HMRC is taking an amount from your tax credits and you’re able to manage your finances in spite of it, then you won’t be needing to do anything. 

Your overpayment letter from HMRC will have details regarding when your tax credits will become reduced and how long they will remain reduced for. 

If HMRC has requested you to pay directly (known as ‘direct recovery’) and you can comfortably afford the repayments, then you can go to GOV.UK’s website and check out ways on how to pay them. 

You can pay them back in a number of different ways such as Direct Debit, online and telephone banking, by a cheque through mail, etc. 

When it comes to direct recovery, you’ll most likely have to start paying the money back within 30 days of receiving your overpayment letter from HMRC. 

Changing the Terms of Your Repayments with HMRC

If you’re not satisfied with the way in which you’re paying HMRC, you can call the tax credits helpline to get the terms changed. 

You can ask them to change: 

  • The amount of money you pay in each instalment
  • The duration for which you’ll need to keep making payments 
  • The way in which you pay the debt back

If you’re not comfortable with the terms of HMRC, it’s definitely worthwhile to contact them and attempt to change them.

If you’re being charged interest on your overpayment(s), then it’s a good idea to make larger repayments if you can. As a result of this, you’ll pay less money in interest and thus, save money in the long run. 

If it’d be difficult for you to take care of essential living costs, you can call the tax credits helpline for assistance. It’d be a good idea to ask them to stretch the repayments over a longer period of time. This would result in the amount being taken off your tax credits each month lowering. 

If you’re paying through direct recovery, you can call and ask HMRC to lower or raise your repayments for your tax credit debt. 

It’s a good idea to assess your finances and calculate how much can afford to spare each month to contribute towards your overpayment. 

Do this by subtracting your essential living costs from your monthly income. Your disposable income should be what you can contribute towards your tax credits debt

Please note that any other debt repayments you may have must also be included within your essential costs. 

Also note that you can also contact HMRC if you’d like to repay the overpayment with a single payment as well. 

And of course, if you’re struggling with finances, then you can also ask HMRC to pay in smaller instalments over a longer duration. 

The key is to always be communicative and present. Always be aware of the fact that if you ignore HMRC’s letters, then you might be visited by bailiffs at your home. 

HMRC also has the authority to take money straight from your bank account if you owe HMRC more than £1,000 and if you’d be left with more than £5,000 in your account. 


Paying back a tax credit overpayment can definitely be stressful but you can communicate with HMRC to make repayments affordable and manageable. 

Just be sure to calculate carefully the amount you can spare each month.

If you’d like more information about how to repay benefits overpayments, feel free to contact me.


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