This section outlines the dispute process which is one of the ways in which a claimant can challenge an overpayment.
To find out more about how to understand whether the claimant has an overpayment and how to identify the cause of an overpayment see overpayment and underpayments.
- The dispute process
- Suspension of recovery during a dispute
- Appeals vs. Disputes
- The previous reasonableness test
- The responsibilities test
- Time limit for disputes
- Exceptional circumstances
- Second disputes and next steps
Most challenges against overpayments will be done using the dispute process. This process is used where there is in fact an overpayment but the claimant believes that they should not pay it back because of an error by HMRC.
The dispute process is not governed by statute. Under statute, HMRC may recover all overpayments howsoever caused. HMRC set out their policy on how they exercise this discretion in Code of Practice 26. The process in COP26 is referred to as the ‘dispute process’.
The dispute process is internal to HMRC. Disputes can be lodged using form TC846 or by letter (generally preferred by advisers as it allows a full argument to be put forward).
Also, there are circumstances where part of all of the overpayment could be remitted by HMRC under their Notional Offsetting policy. See our section on dealing with overpayment debt for information.
If HMRC agree that all or part of the overpayment will not be recovered, its important to be clear whether they have written-off that overpayment amount permanently or whether they have simply remitted it. If they have remitted it, then our understanding the overpayment will remain recoverable (albeit with recovery suspended) and HMRC may seek to recover it at a later date if circumstances change. See our dealing with debt section.
For disputes received by HMRC prior to 15 July 2013, as soon as a claimant disputed an overpayment, whether on form TC846 or in some other written format, HMRC suspended recovery of the overpayment whilst they investigated the matter. Recovery did not recommence unless and until the dispute was resolved against the claimant and in HMRC’s favour. Thereafter, HMRC’s policy was that suspension could only be reactivated if the claimant submitted a new dispute with new evidence to HMRC which required further investigation.
HMRC changed their policy in relation to recovery suspension for disputes received from 15 July 2013. This represents a major change in policy. For disputes received after that date, there will no longer be any suspension of recovery when a dispute is lodged.
If the overpayment is being recovered from an ongoing tax credits award, that will continue whilst the dispute is considered. If the overpayment is being recovered directly via debt management and banking (DMB), they will continue recovery action whilst TCO consider the dispute.
We are not aware of any changes to the policy that if a dispute is successful, any payments made will be refunded to the claimant.
The new policy means it is crucial that claimants and their advisers engage with DMB if the debt is in direct recovery so that further action (ultimately distraint or county court) is avoided. Information about time to pay arrangements can be found in the dealing with debt section.
It is still worth speaking to DMB for direct recovery debts to request a suspension of recovery by DMB (rather than TCO). It is a good idea to try requesting this where the claimant the claimant is in financial hardship or in receipt of certain means tested benefits. Even if the claimant doesn’t fit this criteria it is still worth asking DMB for suspension if a dispute has been filed as even though it is not official DMB policy some officers are prepared to suspend when cases are in dispute or go to the Adjudicator. It should be noted that HMRC’s helpful guidance for advisers in the guide ‘How HMRC handle tax credit overpayments’ has now been withdrawn and there is no published information about when HMRC will consider a suspension as there was previously.
The distinction between appeals and disputes is one that even HMRC staff have difficulty with. There are some important differences between the two processes:
- Appeals are a statutory process. Disputes are governed by COP26 published by HMRC that sets out how their statutory discretion is exercised.
- Appeals are dealt with initially by HMRC (during the mandatory reconsideration stage) but proceed to an independent Tribunal outside of HMRC. Onward appeals go through the court system. This is in contrast to disputes that are decided within HMRC and further challenge is limited through the Adjudicator and Parliamentary Ombudsman.
- Appeals have a strict time limit and the initial mandatory reconsideration request should be made within 30 days of the date on the decision notice. In certain circumstances you can request a late mandatory reconsideration within 13 months of the date on the decision notice. Prior to 6 April 2013, disputes had no time limit. From 6 April 2013 a three month time limit has been introduced. See below for further detail.
- Appeals are filed either by letter or using form WTC/AP. Disputes can be sent either by letter or using form TC846.
- Appeals attract a suspension of recovery of the debt whereas HMRC no longer (from 15 July 2013) suspend recovery for disputes.
Examples of when an appeal and dispute may be appropriate -
- HMRC have worked out your tax credit award incorrectly or decided that you are not entitled to tax credits or some part of tax credits and you do not agree with this.
Example of when an “appeal” is the right thing to do:
Daisha claims tax credits for her three children. Her eldest child finishes her GCSEs but decides to stay on at school to do her A levels. Daisha tells HMRC and continues to receive tax credits for three children. When HMRC work out Daisha’s final tax credits for the year, they only include two children. Because Daisha received money for three children, HMRC think that they have overpaid her. Daisha can appeal the decision and ask HMRC to change her award as she should have received tax credits for three children. If this is successful, the overpayment will disappear.
- HMRC have the right information about your income and situation, but for some reason you were paid more than you were entitled to have.
Example of when a “dispute” is the right thing to do:
Eric and his wife were paid tax credits for three children when they only have two. When Eric received his award notice, he phoned HMRC to tell them they had the number of children wrong. HMRC did not correct the mistake and kept on paying Eric too much tax credit. After the end of the year, Eric had received more tax credit than he should have and so has an overpayment. Eric can use the dispute process because he accepts that he has been paid too much, but doesn’t think he should have to pay it back because he told HMRC of the mistake as soon as he saw his award notice.
If a claimant sends an ‘appeal’ to HMRC that should be a dispute, it will generally be re-directed. Unfortunately when the opposite happens, a claimant sends a ‘dispute’ when in fact they want to appeal, the letter tends to be treated as a dispute. In such cases we recommend that advisers argue that HMRC should treat the original letter as an appeal. There is no requirement that appeals must state that they are an ‘appeal’ so long as they meet the other appeal requirements.
Prior to 31 January 2008, claimants faced the much criticised ‘reasonableness test’. This test had long been criticised by representative bodies, and following a succession of reports in 2007 by the Adjudicator, The Parliamentary Ombudsman and Citizens Advice, HMRC decided to revise the test.
The following paragraphs contain information about the operation of the reasonableness test. Whilst the test is not applicable to new cases, HMRC have stated that the test will still be used where a claimant asks HMRC to review a previous dispute decision that was made under the old test. In practice, our experience is that all current disputes are being dealt with under the new test which is generally more generous to claimants. Officially, any disputes outstanding as of 31st January 2008 should have been dealt with under the new test.
COP26 (April 2007 version) stated:
‘For us to write off an overpayment you must be able to show that the overpayment happened because:
- we made a mistake, and
- it was reasonable for you to think your payments were right.’
Both tests had to be satisfied before HMRC would write off an overpayment.
Of the two tests described above – that HMRC must have made a mistake, and that it must be reasonable for the claimant to have thought their award was right – it was the second of the two, commonly known as ‘the reasonableness test’, that provoked the most controversy.
The old versions of COP26 were most noticeably silent on what claimants could expect from HMRC. Whilst HMRC internal guidance gave some indication of what claimants could expect, the reasonableness test centred around the claimant and put the emphasis on them to check HMRC’s work. There seemed little responsibility for HMRC and this led to large overpayments being recovered in situations where the claimant did not spot an error which HMRC had made.
In designing the new test, HMRC attempted to move away from the one-sided list of responsibilities, replacing a test which imposed all of the responsibility on the claimant to one which set out responsibilities for both parties.
The responsibilities for both the claimant and HMRC can be found in HMRC's Code of Practice leaflet COP 26.
There are four possible outcomes to a dispute:
- Both HMRC and the claimant have met their responsibilities.
In this situation the overpayment will not be written off since, if both sides have met their responsibilities, the overpayment is likely to be a naturally occurring overpayment which is built into the system, or is caused because HMRC have 30 days to action a change.
- HMRC have met their responsibilities but the claimant has failed to meet theirs.
In this situation the overpayment will not be written off because of the failure of the claimant to meet their responsibilities. This may be overridden if there are exceptional circumstances.
- HMRC have failed to meet their responsibilities but the claimant has met theirs.
In this situation the overpayment will be written off because HMRC failed to meet their responsibilities.
- Both HMRC and the claimant have failed to meet their responsibilities.
In this situation the part of the overpayment attributable to HMRC’s failure will be written off, but the part attributable to claimant error will remain recoverable unless exceptional circumstances are present.
There is some useful guidance on how HMRC staff approach overpayment write-off in this situation in the tax credits manual.
One other way of having an overpayment written off is to examine whether ‘notional offsetting’ applies if the case involves separating couples, couples coming together or one member of a couple dying or going abroad for longer than 8 or 12 weeks (depending on the circumstances). More information can be found in our Understanding Couples section.
Since the tax credits system began, most challenges of overpayments have been made through the dispute process. Prior to 6 April 2013, there was no time limit for disputing an overpayment.
Due to the design of the award notices, it isn’t always easy to tell whether there is an overpayment and, even if there is an overpayment, to tell how much is owed. This is especially true for overpayments that occurred in the early years of the system and are still being recovered. It often isn’t until the claimant’s award ends and they receive a demand from DMB (debt management and banking - part of HMRC) that they realise that they have an overpayment, or appreciate its true extent.
Because historically there has been no limit on the time allowed to dispute an overpayment, people could still dispute an overpayment even after their award had ended, and could still be successful in getting it written off if the relevant evidence was available.
However, in order to manage the number of disputes, and get tax credits system ready for the move to Universal Credit, HMRC decided to introduce a three month time limit for disputes from 6 April 2013.
Although this is a fairly simple change in theory, the operation of the time limit is very complex. As a result, although the time limit appeared on award notices from April 2013, it was fully implemented from October 2013.
As set out in COP 26, the three month time limit for disputing an overpayment runs from the date of the final award notice relating to the tax year in which the overpayment arose (but see below for overpayments from earlier years).
For people whose claims are auto-renewed the time limit runs from the date the renewal notice states a final decision will be made. For most people this will be 31 July following the end of the tax year to which the claim relates. Note that it is not the date of the renewal notice itself, but the date that it says a decision will be made.
Example 1: Dean and Sharon receive a Section 17 auto-renewal notice which is dated 14 May 2016 as they were in receipt of income based Jobseeker’s allowance for the entire 2015-2016 tax year. The notice states that if HMRC do not hear from the couple, they will confirm the amount due for 2015/16 (ie the entitlement decision) and make a decision on how much to award for 2016/17 on 31 July 2016. Dean and Sharon have 3 months from 31 July 2016 to dispute any overpayment listed for 2015/16.
Following representations by LITRG, where an appeal is unsuccessful (or only partially successful) and any remaining overpayment then needs to be disputed, the three month time limit for the dispute will run from the date of letter telling the claimant the outcome of their appeal.
Finally, in some cases, such as where a claim is investigated by HMRC under their compliance powers, a new final award notice may be issued at the end of the investigation. If that happens, the three month time limit is activated again from the new final award notice.
The time limit was introduced from 6 April 2013 and therefore affected finalised notices for the 2012-13 tax year. As explained above, the time limit runs from the date of the final notice relating to the tax year in which the overpayment arose.
For 2012-13 final award notices only, the time limit applied to overpayments relating to the 2012-13 tax year and historic overpayments for earlier years.
In other words, claimants were able to dispute within three months of the 2012-13 final notice in order to challenge any 2012-13 overpayments and any overpayments from earlier years that had not already been disputed. If they did not, the chance to dispute was lost unless they can show exceptional circumstances as to why they missed the deadline.
Final award notices for 2013-14 and subsequent years only carry dispute rights against any overpayment that occurred in the year being finalised. For example, the final notice for 2015-16 will give three months to dispute any overpayment that occurred during 2015-16 but not any overpayment from 2014-15 or earlier years. The time limit for disputing those overpayments will have passed.
Example 4: Ronnie has been overpaid during 2015-16 as HMRC did not initially process a change of circumstances that she reported. The overpayment of £2500 is shown on the final award notice dated 17 August 2016. Ronnie will have until 17 November 2016 to dispute that overpayment. Ronnie also has overpayments for 2014-15 and 2011-12. She cannot dispute those overpayments as the time limit has expired.
Many tax credits claimants do not realise that they have an overpayment until their claim has ended and they receive a demand from Debt Management and Banking. The volume of overpayment debt has meant that HMRC have been slow to chase claimants for old debt. In some cases, claimants have heard nothing from HMRC for a number of years. It is worth checking whether the Limitation Act 1980 might apply in particularly old cases.
Up until October 2013, where claimants received a new demand from HMRC after years of no contact, if they chose to do so they could have sent in a dispute against the overpayment.
From October 2013, HMRC have made it clear that claimants can no longer dispute old overpayments where they have not disputed within 3 months of their final award notice. In practice, this means that those with debts being recovered directly for 2014/15 and earlier years are unlikely to have the right to dispute.
If a claimant is outside of the three month time limit, HMRC guidance is that they will accept the dispute if there is a good reason why the claimant missed it. For example due to serious illness. This should be explained in the dispute letter sent to HMRC.
We envisage that there may be situations where claimants have contacted the helpline to dispute an overpayment but have received incorrect advice. Or the issue may have been referred to a back office team and no dispute form been given to the claimant. In such cases, advisers should write to HMRC stating that the dispute should be admitted.
If HMRC still refuse to accept the dispute, then advisers should lodge a formal complaint (remembering that there is generally no suspension of recovery during the complaints process unless agreement can be obtained on a case by case basis from DMB).
The introduction of the three month time limit for disputes means that the statutory official error provisions become more important.
Under these provisions, an HMRC decision can be revised in favour of the claimant if it is incorrect by reason of official error – defined as an error by HMRC or DWP to which the claimant or adviser did not materially contribute. In most cases these provisions provide an avenue where the appeal time limit has passed, although in certain circumstances they can apply as an alternative to disputes.
Although these official error provisions have always existed, they are rarely used by claimants and advisers. Instead the issues often get dealt with as ‘disputes’ particularly where the time limit for an appeal has expired. For the claimant, the result of a successful challenge under the official error provisions is that the overpayment does not have to be repaid. The two routes are different because a successful official error argument means that the award is amended so the overpayment disappears, whereas with a dispute the overpayment remains but is simply written off so the claimant does not have to repay it.
As there has been no time limit for disputes up to 5 April 2013, there was no need for claimants to specify which heading they were challenging the overpayment under.
However, now the dispute time limit has been implemented, it is important to consider whether the statutory official error provisions apply because the time limit for official error is much longer (five years) than the three months allowed for disputes and the time limit allowed for appeals. The rules relating to official error are explained in a separate section.
If HMRC refuse to admit a dispute because it is outside of the time limit and the appeal time limit has passed, but the case is one that fits the official error provisions, advisers should make a request under the Official Error Regulations and highlight the time limit. See our Official error section for more information.
As part of the dispute process, HMRC staff should consider whether exceptional circumstances prevented a claimant from meeting their responsibilities. (See steps 6-9 of the dispute process in the tax credit manual)
According to the guidance exceptional circumstances do not need to be rare, and the words can simply mean ‘strong reasons’. Examples given of exceptional circumstances are the death of a close relative, serious illness, and flooding of the claimant’s home.
If exceptional circumstances are found then the overpayment that resulted from the claimants’ failure to meet their responsibilities due to exceptional circumstances should be written off.
It is not possible to list circumstances which HMRC will accept as ‘exceptional’. HMRC take a different approach in each and every case depending on the circumstances. It should be noted that the exceptional circumstances with which HMRC are concerned in this part of the test are those existing at the time when the claimant was expected to meet their responsibilities. Exceptional circumstances may also exist which mean it is more difficult for the claimant to repay an overpayment or they may exist at the time when a dispute should have been filed within 3 months of the date of decision.
One of the biggest difficulties with disputes is evidence. HMRC will often refuse to accept that a claimant has met their responsibilities if they cannot locate correspondence or telephone calls in support.
It is for this reason that we recommend that claimants keep a file with copies of all tax credit correspondence. Claimants should keep copies of all letters sent to HMRC as well as detailed notes about any telephone calls including date, time, operator name and a brief description of the conversation.
Sometimes called data protection requests, Subject Access Requests are a useful way to obtain copies of data from HMRC including print outs of household notes (the notes that helpline operators make during telephone calls), other award information and telephone calls. You can find details of how to submit a SAR request in the Obtaining information about your client section of the website.
Records of telephone calls
As noted above, a SAR request can help you obtain copies of phone call recordings. In our experience HMRC do not always listen to calls and it is therefore advisable to make it clear in any dispute that HMRC should listen to all relevant recordings.
Unfortunately, despite HMRC repeatedly saying that all telephone calls are recorded, this is not always correct particularly in relation to the early tax credit system. In a number of cases in 2003 and 2004, calls to the helpline that were diverted to a private supplier were not always recorded. The scale of the problem was revealed in the answer to a Parliamentary question by David Laws MP on 20 February 2007 (see col 612W in Hansard for that date). The response from Benefits and Credits was:
‘The private sector advisers dealt mainly with generic, non-claimant specific enquiries. They received the same training as the HMRC staff to enable them to do this.’
However, it would have been very difficult to filter accurately the generic from the claimant-specific, particularly where the same call contained elements of both.
Following a campaign by LITRG and others, tax credit officials have agreed that where an issue arises as to whether a claimant telephoned the helpline at that time to report a change in circumstances or a mistake in their payments, in the absence of any tape recording of the call the claimant will usually be given the benefit of the doubt, with any ensuing overpayment being written off.
As far as we are aware, all phone calls are now recorded to the main helpline although this may not be the case with compliance phone calls or outbound calls by HMRC. It is advisable that claimants always make a note of the date, time, adviser name and a brief note of the call.
If the claimant has further evidence in support of the overpayment, a further (second) dispute can be sent to HMRC. It is advisable that this second dispute makes it absolutely clear what the further evidence is and why it changes the previous dispute decision. HMRC will continue to recover the overpayment during this second request.
According to COP 26, this second request must be done within 30 days of receiving your dispute decision letter. In exceptional situations, such as when the claimant is in hospital, HMRC will accept a second dispute outside of the 30 day time limit.
While there are rights of appeal against awards and other decisions on tax credit entitlement, there is no statutory right of appeal against the exercise by HMRC of their discretion in relation to an overpayment recovery. That is not to say there is no legal or other remedy. If HMRC refuse a request to write off an overpayment resulting from their error, the following steps may be taken.
- Consider whether statutory ‘official error’ might apply in the case. This is explained in our official error section.
- Make a formal complaint under HMRC’s complaint procedures. These used to be described in the factsheet Complaints and putting things right which supplanted Code of Practice (COP) 1 in April 2007. The factsheet appears to have been withdrawn and information is now presented on the GOV.UK website. More information about complaints can be found below in our complaints section.
- If the internal complaints route produces a result that is unsatisfactory to the claimant, refer the matter to the Adjudicator . The Adjudicator acts as a ‘fair and unbiased referee investigating complaints about [HMRC and certain other departments] after their own efforts to resolve matters have failed’. It is important to note that the Adjudicator cannot rewrite HMRC policy and procedure; she can only determine whether the existing policies and practices of the Department have been applied fairly.
- If the claimant is dissatisfied with the Adjudicator’s decision, the claimant’s MP can refer the matter to the Parliamentary Ombudsman whose brief is to investigate cases of maladministration by Government departments or other public bodies resulting in injustice.
- Although there is no statutory right of appeal against HMRC’s exercise of their discretion, there is one judicial remedy – that of judicial review. See our judicial review section for more information.
Last reviewed/updated 12 July 2021