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HMRC internal manual

Tax Credits Manual

Payment - payment profile: Payment profile - underpayments and overpayments (Info)

An underpayment will occur where a tax credit entitlement increases from a date earlier than the processing date. An overpayment will occur where

  • tax credits entitlement decreases from a date earlier than the processing date
  • a debt is carried forward from a previous year.

Underpayments or overpayments are calculated in the following way

  • all debits (contras, payments, overpayments from previous years) are totalled
  • all credits entered on the recipient’s tax credit accounting record (previous awards of tax credits, underpayments from previous years) are totalled
  • the credits less the debits will give a current balance of the account (the net amount of payments made to date). Any difference between this and the balance of the current award that should have been paid to date is the amount of the

    • underpayment - or positive result


    • overpayment - or negative result.

If there’s a net underpayment of an award, the amount underpaid will be paid to the recipient as a one off payment for arrears.

The exception to this is if the underpayment has been caused by a reduction in the household income. In these circumstances, because the new award is based on an estimate of income for the current year, the potential entitlement will be retained until the award is finalised when the actual income is known. For further information, follow the guidance in TCM0234040.

If there’s a previous year’s overpayment up to Current Year (CY) -3, or a current year’s overpayment, then this will be compared to the maximum amount recoverable limit. This indicates the maximum amount that can be recovered in one award year.

If the overpayment amount is

  • less than this limit, it’ll be recovered in full in the current year
  • greater than this limit, the amount up to the limit will be recovered in the current year.

Any such recovery will be subject to a minimum amount left in payment limit, so payments will only be reduced to the level of that limit.

End-of-year processing will do any account posting for recovery of CY overpayments.

Overpayments can be recovered across different tax credits and across recipients within the same family.

For example: a WTC overpayment for customer 1 can be recovered from the CTC award made to customer 2. Overpayments will be recovered from the same tax credit first, then from the same person, and finally across person and tax credit.

If regular award payments vary during the year, then overpayments are recovered in proportion to the payments. The amount to be recovered in-year is divided by the total remaining to be paid. Payments to that recipient are reduced by the resulting fraction.

Where an overpayment can’t be recovered within the award year but the award is ongoing, the remaining balance of the overpayment will be carried forward into the next award year. Recovery in this way can continue for up to three award years after the debt was incurred.

If the award isn’t continuing, the overpayment will be brought to the attention of Debt Recovery.