Tax Credits: DWP/DfC and tax credits debt
DWP can recover tax credits debt in two situations:
- Where a tax credit claimant moves to Universal Credit (UC). The debt will be transferred from HMRC to DWP. DWP will then reduce the UC to recover the tax credit debt. Even if the UC claim ends, the debt remains with DWP to recover using their usual debt recovery methods.
- Where HMRC pass the debt to DWP to recover – HMRC have a general power to transfer tax credit debts to DWP
NOTE: In Northern Ireland, debts are recovered by Department for Communities (NI DfC). References to DWP should be read as DfC for claimants in Northern Ireland.
If the debt has not been passed to DWP/DfC – see our main dealing with overpayment debt page.
Quick links
- Who should claimants contact about their tax credit debt?
- Can DWP recover old tax credit debts?
- Recovery of tax credit debts from universal credit
- Transfer of non-UC tax credit debt to DWP/DfC
Who should claimants contact about their tax credit debt?
When debts pass between HMRC and DWP/DfC, it can be confusing for claimants to know who to contact. The following table indicates who should be contacted, depending on the issue/question:
| Issue |
Who to contact |
| Explanation about how/why the overpayment occurred | HMRC (tax credits) – note that DWP/DfC will continue recovery even if an explanation is requested. |
| Challenge the overpayment by dispute, appeal or official error | HMRC – note that DWP/DfC will continue recovery even if a claimant disputes the overpayment or challenges it on official error grounds. Where an appeal is lodged, HMRC should notify DWP/DfC to stop recovery of the debt. |
| Questions about the apportionment of debt in joint claims | HMRC |
| Hardship requests/difficulties paying – such as reducing the percentage of recovery from a UC award, suspending recovery | DWP/DfC |
| Direct earnings attachment questions | DWP/DfC |
Can DWP recover old tax credit debts?
Claimants may contact you with very old tax credit debts, often they will say that they have not heard from HMRC for many years. It is not unusual for debts to be over 10 years old.
In theory, in England and Wales, the Limitation Act 1980 applies to tax credit debts. There is some confusion in this area because the Act does NOT apply to tax debts. This is confirmed in the HMRC DM manual. The act provides that recovery action for debts should commence within six years from the debt becoming payable. In most cases, this prevents HMRC from taking County Court action but generally doesn’t stop recovery from ongoing benefit awards or from the debt transferring to DWP for recovery (either via universal credit or separately).
The law on whether this six year rule applies is complex and advice must be obtained from a legal and/or debt specialist.
The rules are different in Scotland and Northern Ireland.
Recovery of tax credit debts from universal credit
Under the Welfare Reform Act 2012 and subsequent regulations, DWP have the power to recover a tax credit overpayment debt from UC payments. Once the UC award ends, the debt remains with DWP and negotiation for time to pay and hardship will be dealt with by DWP.
The claimant journey in these cases is explained more fully in our UC section.
Transfer of non-UC tax credit debt to DWP/DfC
We understand that at present where a person has a tax credit debt that they are repaying to HMRC (either by direct repayments to HMRC or from ongoing recovery from a tax credit award up to 5 April 2025) and the person does not claim universal credit or pension credit, HMRC will continue to recover the overpayment. If the person subsequently makes a claim for universal credit or pension credit at future date, HMRC will transfer the outstanding debt amount to DWP for DWP to recover.
However between 2017 and 2025, HMRC transferred some non-UC tax credit debt to DWP and DfC for recovery. Under this process, the person may not have been claiming any DWP benefits and this may have been their only interaction with DWP.
DWP and NI DfC have some different legal powers to HMRC which mean they have more options available to them to collect outstanding debts from individuals. One of the key differences is that DWP and (NI DfC) can collect outstanding debts directly from an individual's pay, using a direct earnings attachment, without the need to first take the individual to court.
Transferring the outstanding tax credit debts to DWP (or NI DfC) for them to recover the money instead of HMRC allows them to use this option. It is, of course, also in line with longer-term changes at HMRC as they very gradually reduce their tax credit operations as more and more people move over to universal credit (UC).
Last reviewed/updated 11 May 2025