Tax credits: how they ended and dealing with overpayments

Working Tax Credit and Child Tax Credit have ended. You cannot make a new claim for either one, and the tax credit system closed on 5 April 2025¹. Both were payments from the government, administered by HM Revenue and Customs (HMRC), designed to top up the income of working people on low pay and families with children³. They have been replaced by Universal Credit, or by Pension Credit for people who have reached State Pension age¹.

If you used to claim tax credits, two things may still follow you. First, you may owe money: HMRC may have paid you too much in a past year, and all tax credit overpayments are recoverable, even now the system has closed⁴. Second, you may be owed money: awards were only finalised once HMRC knew your circumstances for the whole tax year, which happened four to nine months after the tax year ended, so some people were left with arrears or top-ups to sort out⁵. This page explains both sides, how to dispute a debt you do not think you owe, and where to get free help.

Tax credits have ended: what it means for former claimants

Tax credits ended on 5 April 2025². The closure was the end of a managed process, not a sudden cut. The migration of tax credit and legacy benefit claimants to Universal Credit, known as Move to Universal Credit, began in October 2023⁷, and all tax credit claimants have now been moved onto Universal Credit as part of that process, with ongoing tax credit payments ending⁸. Previous claimants had their claims closed from April 2025⁹.

The practical meaning for a former claimant is that there is no tax credit claim to renew, and no new claim to make. If you were getting tax credits and did not move across, your payments stopped when the system closed. The replacement is Universal Credit for people of working age, or Pension Credit for those who have reached State Pension age¹. One point that mattered during the move, and still matters if you are claiming now: once you submit a claim for Universal Credit, your existing benefits end, and you cannot go back to them¹⁰.

The end of tax credits does not end the paperwork. Awards were finalised four to nine months after the end of the tax year, once HMRC knew a family's circumstances for the whole year⁵, so letters about final awards, overpayments and underpayments have continued to arrive after closure. HMRC also wrote to people who moved to Universal Credit with an outstanding overpayment, using a letter called "Your Tax Credits over-payments" (TC1131)⁶. If you receive one of these, the sections below on repaying and disputing apply to you.

What Child Tax Credit and Working Tax Credit paid for

There were two types of tax credit, administered and paid together with one claim form³. Working Tax Credit was a means-tested benefit for working people on a low income, to help with everyday living costs¹¹. Child Tax Credit went to people responsible for at least one child or young person¹², and was usually paid until the child was 19¹¹.

Working Tax Credit had an hours test that varied by circumstance¹³:

The 24 hour rule for couples did not apply where the partner working at least 16 hours was a disabled worker or over 60, or the other partner was in hospital, in prison, or getting certain sickness or disability benefits such as employment and support allowance or disability living allowance¹³. A bonus was payable in Working Tax Credit if you worked 30 hours a week or more, with a couple's combined hours counted¹³.

Working Tax Credit also carried a childcare element. You could claim up to 70 per cent of your childcare expenses, with maximum amounts of 70 per cent of £175 a week (£122.50) for one child, or 70 per cent of £300 a week (£210) for two or more children¹⁴. Help covered the first 39 weeks of maternity leave, up to 28 weeks off work because of illness, and 4 weeks after a job ended or hours dropped below 16 a week¹⁴. Childcare help ran up to the September after a child's 15th birthday, or after their 16th birthday if they were getting Disability Living Allowance or Personal Independence Payment, or were registered blind¹⁴. Tax-Free Childcare could not be claimed at the same time as Working Tax Credit, Child Tax Credit or childcare vouchers¹⁵, and Universal Credit claimants cannot open a Tax-Free Childcare account until they close their Universal Credit claim¹⁶. The rules are covered in Tax-Free Childcare: how the government top-up works.

Couples normally had to claim tax credits jointly, and both partners had to satisfy a residence test¹⁷. Where one partner was subject to immigration control, a couple could still claim jointly, although the rate did not include the additional element for couples; if only one partner satisfied the residence test, that person could be entitled as a single person¹⁷. The residence test for Child Tax Credit included the requirement to have a right to reside, which did not apply to a claim for Working Tax Credit only¹⁷.

Moving to Universal Credit or Pension Credit

Universal Credit replaces six legacy benefits and tax credits for working-age households with a low income: Income-based Jobseeker's Allowance, Income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Housing Benefit¹⁸. It is means-tested and combines those six into a single payment¹⁹. In Northern Ireland, the same six benefits and tax credits are replaced¹⁸.

The scale of the move was large. Of Move to Universal Credit claimants in Great Britain, 0.8 million (46.9%) had previously been receiving benefits linked to Child Tax Credit or Working Tax Credit²⁰. The government's evaluation covered households in Great Britain who were receiving tax credits only, whether Working Tax Credit, Child Tax Credit or both, and were invited to move through the managed migration process, up to the closure of the tax credit system in April 2025²¹.

Two rules shaped the move. When you claim Universal Credit, any benefits it replaces stop²², and you cannot go back to your existing benefit once you have claimed¹⁰. For people who moved from Universal Credit to Pension Credit, any time spent getting Universal Credit counts towards the 26 weeks needed to qualify for a Social Fund Budgeting Loan²³. If you had no money to live on while waiting for a first Universal Credit payment, a Universal Credit New Claims Grant payment might be claimable through the Finance support service²⁴.

Why some people still owe or are owed tax credits

The tax credit system worked in two stages: an initial award and a final award³. The initial award was based on what you expected your income and circumstances to be; the final award was settled once HMRC knew the actual figures for the whole tax year, four to nine months after the tax year ended⁵. That gap between estimate and reality is why money is still moving in both directions after closure.

On the owing side, if HMRC paid you too much because your earnings were more than they thought, the overpayment must be repaid⁴. On the owed side, underpayments could range from £10 to over £2,000⁵. Finalisation letters have continued to arrive since April 2025, and HMRC's letter TC1131 told people who moved to Universal Credit what overpayment was being carried across⁶.

A few related points can catch people out. National Insurance credits are separate from tax credits: the government may give you credits so you can continue building up State Pension entitlement if you cannot pay National Insurance, for example because you are ill or caring for someone²⁵. These are covered in National Insurance credits: who gets them and how to apply. Separately, if you have a debt relief order, creditors may still send balance statements of any outstanding amount for up to 12 to 18 months because they are required to by law²⁶. And if you owe tax from a previous year, HMRC may collect it through your wages or pension using a K tax code, which can also arise from getting the State Pension, taxable state benefits, company benefits, or savings interest above your Personal Savings Allowance²⁷. How codes work is explained in tax codes explained.

How overpayments happened: income changes and the £2,500 disregard

The core mechanism was income. If your income for a year was set to rise by more than £2,500, you might be paid too much in tax credits and have to make a repayment the following tax year³. The first £2,500 of a rise was disregarded, so small increases did not immediately reduce an award, but anything beyond that was counted against you at finalisation.

This is why the system demanded prompt reporting. You had to report changes to HMRC within 1 month of the change¹², including leaving the UK for more than 8 weeks¹⁴. A rise in income reported late, or not reported at all, meant the initial award had been built on figures that were too low, and the difference emerged at finalisation as an overpayment.

The official statistics show how common this was. In 2024/25, only 20% (115,000) of tax credits were paid correctly, a fall of 23 percentage points compared with the previous year⁵. The average amount overpaid that year was £428⁵. Overpayments ranged from £10 to over £2,000, and underpayments covered the same range⁵. Finalisation occurred four to nine months after the end of the tax year, when families' circumstances for the whole year were known⁵.

The most common causes of overpayments

The largest single group of overpaid awards in 2024/25 fell in the £200 to £500 band, the same as the previous year⁵. Around that headline figure, the causes trace back to the design of the system: awards paid on estimated income, changes of circumstance reported late or not at all, and the final reconciliation that followed.

The wider benefit system's fraud and error statistics give a sense of scale, though they cover all measured benefits rather than tax credits alone. Overpayments across all measured benefits were £8,300m in the financial year ending 2023²⁸. Claimant error was a significant driver in several benefits: Employment and Support Allowance overpayments due to claimant error reached their highest recorded level of 1.5% (£190m) in that year²⁸. The same statistics show how error and fraud differ by benefit, which is why a tax credit overpayment is not evidence of wrongdoing: most arose from circumstances changing between an estimate and a final figure.

For a family, the practical causes were everyday events: a partner's hours increasing, a new job with better pay, a child leaving education, a childcare cost falling, or a disability benefit being awarded late and changing the elements due. Each of these changed the award that had already been paid.

Repaying a tax credit overpayment

All tax credit overpayments are recoverable²⁹. They are owed to and collected by HMRC³⁰. If you were still getting tax credits, the payments were reduced until the debt was paid, based on annual household income⁴. Now that tax credits have ended, recovery happens through other routes: deductions from an ongoing tax credits claim or a Universal Credit claim, reducing your tax code, the same enforcement methods as for a tax debt, or agreed deductions from your benefits in writing³¹.

If you moved to Universal Credit, HMRC was likely to move the debt to the Department for Work and Pensions (DWP) to recover as though it were a Universal Credit overpayment³⁰. The debt is not moved if there is an ongoing dispute or a mandatory reconsideration in progress³⁰. If your household earnings are above a certain level, up to 15 per cent can be taken from your Universal Credit payments⁶. Deductions from Universal Credit are a priority matter, and questions about them are handled through the routes set out for Universal Credit deductions³².

Two further rules matter. If you claimed tax credits as a couple, the overpayments are split equally between you and your partner⁶. And if paying the money back will cause you hardship, you may be able to reduce the rate at which you pay it back by speaking to HMRC and asking for time to pay at a rate you can afford³¹. Tax credit overpayments are treated as priority debts in debt advice because HMRC has strong recovery powers³¹; the general framework is covered in Debt: a complete guide.

Disputing an overpayment and the right to appeal

If you do not agree that you have been overpaid, or that the amount is correct, you may be able to appeal³¹. The first step is to ask HMRC to review the decision: call 0345 300 3900, or complete and return the tax credit overpayments form TC846⁴. The helpline number for payment queries is 0345 302 1429³⁰.

A dispute is worth pursuing where the overpayment arose from HMRC error, from information you did report, or from a figure you can show was wrong. While a dispute or mandatory reconsideration is ongoing, the debt is not transferred to the DWP for recovery from Universal Credit³⁰. If HMRC upholds the overpayment after review, the appeal route continues, and the options for challenging HMRC decisions more generally are explained in HMRC internal review or tax tribunal and how to complain about HMRC.

Free, independent help is available before you commit to anything. StepChange, National Debtline and Business Debtline all publish guidance on tax credit overpayments⁴, and free debt advice is available from StepChange, Which? and Citizens Advice³³. You do not need to pay a company to dispute a tax credit overpayment.

Late disability awards: backdating tax credits within 1 month

A late disability award could change a tax credit award after the event, and the deadlines here are short. If Social Security Scotland backdated your disability benefit to a time when you were getting tax credits, you could still get a payment from HMRC, but only if you told HMRC within 1 month of getting the new decision². The same one month limit applied to Child Tax Credit arrears of the disabled child element: it would only pay arrears if you claimed within one month of the date on your Disability Living Allowance decision letter⁸.

In Scotland, the replacement disability benefits have their own backdating rules. Social Security Scotland generally backdates Pension Age Disability Payment to the date you start your application, if it is successful³⁴. For people moving to Scotland from the rest of the UK, a new entitlement to a replacement Social Security Scotland benefit may be backdated to the day after the DWP or Department for Communities (Northern Ireland) benefit stops³⁵. For Child Disability Payment specifically, a cross-border award is backdated to the day after the Disability Living Allowance for Children award ends, provided the client registers their name and date of birth with Social Security Scotland within 26 weeks of the move and submits the completed part 2 application within 32 weeks³⁶. Awards under special rules for terminal illness can be backdated to the date of diagnosis, up to a maximum of 26 weeks before the date of application³⁶.

Backdated arrears can also have knock-on effects. When someone dies, benefit arrears checked as part of the estate can include Social Security Scotland benefits, DWP benefits, HMRC tax credits and Department for Communities (Northern Ireland) benefits³⁷. And where a Housing Benefit decision depended on a Scottish disability or carer benefit that has been reinstated, the legislation allows the housing benefit decision to be revised at any time³⁸.

Are tax credits taxable, and do they count as income?

Tax credits were not taxable income. They were government payments administered by HMRC³, but they did not appear in your income tax bill, and there is no tax return line for them. The wider picture of what is and is not taxed is covered in income tax: bands, rates and how your bill is worked out.

Tax credits did, however, interact with other income and benefits in both directions. If you received income-related benefits or tax credits, a student Maintenance Loan was counted as income when working out what you were entitled to, based on the maximum loan you were entitled to borrow even if you chose not to take it out³⁹. Student loan repayment rules are separate, and covered in student loan repayments. Tax credits also affected eligibility for other support: Tax-Free Childcare could not be claimed alongside them¹⁵, and Help to Save was open to people receiving Working Tax Credit, those entitled to Working Tax Credit and receiving Child Tax Credit, or Universal Credit claimants with a take-home pay of £722.45 or more in the last monthly assessment period¹⁹.

Getting help with tax credit debts and disputes

Tax credit overpayments are treated as priority debts: HMRC can deduct from benefits, adjust tax codes and use the enforcement methods available for tax debts³¹. That does not mean there are no options. You can ask HMRC for time to pay at a rate you can afford³¹, dispute the overpayment by phone or on form TC846⁴, and appeal if you disagree with the outcome³¹.

Free and independent help is available:

• StepChange publishes guidance on tax credit overpayments and offers free debt advice⁴
• National Debtline and Business Debtline both maintain guides on tax credit overpayments and on priority debts²⁹
• Citizens Advice and Which? are named alongside StepChange as sources of free debt advice³³
• MoneyHelper-style support through these charities costs nothing; there is no need to pay a fee-charging company

The general framework for dealing with problem debt, including benefit debts, is covered in Debt: a complete guide, and the benefits system as a whole in Benefits in the UK. If your dispute is with HMRC itself rather than the debt, how to complain about HMRC sets out the complaints route and escalation to the Adjudicator.