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Use a Debt Management Plan to resolve Overpaid Tax Credits

If you have been overpaid Tax Credits HMRC will require the money to be returned. But what can you do if the debt is large and you are not entitled to further payments? Using a Debt Management Plan may offer a solution.

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Can overpaid Tax Credits be included in a Debt Management Plan?

Tax Credits overpayments are debts owed to HMRC. They can often be repaid by HMRC reducing future benefits payments. However this may not be possible if you are no longer eligible for the benefit or the debt owed is large.

In these circumstances a Debt Management Plan could be used to resolve the problem. Despite being owed to HMRC Tax Credit debts are unsecured. As such they can be included in the solution.

The problem however is that normally HMRC will want to see Tax Credit debt repaid within 12-24 months. This may not be achievable with a Debt Management Plan. If the amount you are able to pay towards all your debts is small the Plan will normally last more much longer than 2 years.

DM4U Tip: HMRC are often reluctant to agree to their debts being repaid as part of a Debt Management Plan. This is because the plan itself will normally last far longer than 24 months.

Can you ever resolve Tax Credits debt with a Debt Management Plan?

If HMRC do not agree to a Debt Management Plan you may still be able to use this solution to resolve Tax Credits debt. This could be the case if you have other debts you need to pay.

You could use a Plan to reduce the payments to your other unsecured debts. This would then free up cash which you can use to repay your Tax Credits. As long as they are paid within 24 months as required the solution could work very well.

You would need to make a separate Time to Pay agreement direct with HMRC. Once this is in place the disposable income you have left over is available to start a Debt Management Plan for your remaining debts.

Which debt solutions can include Tax Credits overpayments?

Of course you may simply be unable to agree a 12-24 month Time to Pay arrangement with HMRC. It will be impossible if you do not have the spare cash to make the necessary payments. Even if you do what if there is nothing left to start a DMP for your other debts?

If you do not have sufficient spare cash to repay your Tax Credit overpayments a Debt Management Plan will probably not work for you. In these circumstances a better solution might be a Debt Relief Order or IVA.

If you are renting and have a low income you should consider a Debt Relief Order (DRO). Once in place this solution means you no longer have to repay HMRC and will be debt free within a year.

DM4U Tip: A Debt Relief Order is only available if your total unsecured debt is less than £20,000 and you have less than £50/mth disposable income. However if you do not meet these criteria Bankruptcy may also be a sensible solution to think about.

If you are a home owner an option you can consider is an Individual Voluntary Arrangement (IVA). You can include any money owed to HMRC and other unsecured creditors in this agreement. However you must be able to make payment of at least £80-£100/mth towards your debt.

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