Instead of requesting a cash repayment of overpaid tax credits HMRC will where circumstances permit now reduce current tax credits awards in order to repay outstanding debts from previous claims. Depending on a person's circumstances, outstanding overpayment(s) may be from one or more previous awards.

HMRC says that it will will send a revised award notice to the claimant when it starts to recover overpayment(s). This will tell the claimant how much they owe and how it will affect payments. They will continue this recovery until the overpayment(s) is repaid or the claimant is no longer entitled to tax credits.

If claimants have an arrangement in place to repay debts they will not be affected by this change.

HMRC will apply a different rate of recovery depending on a household's circumstances and income. Those on lowest incomes will have their debt repayments spread over a longer timeframe.

The maximum recovery rate is 25% of current payments; however households with a limited income who are receiving a maximum tax credits award may only experience a 10% reduction in payments.

Claimants suffering severe hardship can contact HMRC on the Tax Credit Helpline: 0345 300 3900 (Textphone: 0345 300 3909) to discuss their individual circumstances and any help that may be available.

Source: HMRC Brief 40 (2014)