Overpayment of benefits – are you getting too much?

posted by in Budgeting

filling in tax credit forms can be daunting

Filling in tax credit forms can be daunting

You’ve had a gut feeling you’ve been receiving more unemployment benefit, tax credits or council tax discounts than you may be entitled to for some time now.

The tax office mentioned something about letting them know straight away if you have a change in circumstances. But a few more pounds a week in benefits are far from ‘public enemy number one’ material, right?

If you don’t know a lot about the tax system and how it works it can be downright bewildering. You might end up thinking, “surely they won’t know I’m getting more than I should? Even if they did, what could they do about it?”

As it turns out, there’s a lot they can do about it. Don’t worry, there’s also something you can do to put things right.

What you should know

New legislation allows the Department of Work and Pensions (DWP) and local authorities to add a civil penalty to any benefit overpayments that you’re responsible for. This will apply to all DWP benefits (JSA, ESA and DLA). Local authorities can also penalise you for overpayments of council tax benefit and housing benefit.

If you didn’t tell the agency of a change in circumstances you’ll have to pay back the whole overpayment plus £50 (this isn’t the case if the overpayment is the fault of the DWP or local authority itself).

When it comes to tax credits, Her Majesty’s Revenue and Customs (HMRC) can fine you up to £3000 if they believe you wilfully claimed too much.

Why you shouldn’t blame yourself

I work full-time but also on a self-employed basis for another website. I believe I’m of average intelligence (despite anything my other half says!) but trying to understand tax-related letters is like trying to learn Swahili in a week –easier said than done!

Little wonder then that forums such as Netmums and MoneySavingExpert are inundated with cries for help to make sense of it all.

The natural human response when dealing with things we don’t understand is to shut down, turn away and put our head in the sand. Many clients tell us this is how they’ve dealt with their debt.

It’s important that you deal with any benefit overpayments as soon as possible. It’s much better than making them contact you. Explain that you’re no tax expert but that you’re willing to come to a realistic arrangement in order to put things right.

What if they tell me I have to pay it all back in one go?

Luckily, the DWP and local authorities can be flexible when it comes to overpayments. If it would be better to pay the debt in instalments, showing the DWP a budget to support this could be enough.

If you’re on benefits, they can deduct the payments each week. It may be possible to negotiate right down to a couple of pounds if you need to budget for living costs and household bills. HMRC can also be lenient when an innocent mistake has been made, especially if it’s a first time claim.

I was claiming single person’s discount on my council tax but now my partner’s moved in/my child has turned 18 – what should I do?

Your council tax is a priority bill, and penalties can be severe if you wilfully avoid payment. Telling the council about your change in circumstances might encourage them to work something out with you. This is something we strongly advise, as it can be difficult to negotiate reduced payments with a bailiff.

It’s tempting to not tell the council that a new partner now lives with you, but we strongly advise against this. All it takes is one phone call from a nosy neighbour to land you in hot water.

When a child in your household turns 18 and they’re no longer in education, the chances are you will no longer be entitled to this discount. The council usually writes to you to let you know, but this isn’t guaranteed. Check with them to make sure where you stand – letting it lie could result in a hefty overpayment debt.

There’s more useful information on how to deal with overpayment on the Advice Now website.

You can also check to see if you’re claiming all the benefits you’re entitled to by using our online benefits checker.

What else can you do to help me?

While we can’t negotiate directly with the DWP or your local council we can help you put a budget together that supports an offer of payment you are making. Most local councils know us and refer people to us. We’ll help to prioritise these important bills and look at areas in your budget that can be reduced.

If you have unsecured debts such as loans, credit cards and store cards, we can help you adjust your payments to these so you can pay more to the overpayment debts. Your creditors also know us and should meet you halfway until things improve.

If you’ve been lumbered with an unexpected overpayment bill you don’t need to suffer alone. Use Debt Remedy, our anonymous online debt advice tool.

For more details on the changes in welfare, read our benefit changes section.

Rachel Connor has been with the charity for over 8 years, starting in Helpline before joining the MoneyAware team in 2012. Rach enjoys travelling, video games, watching anime, reading and creative writing in her spare time (currently writing a Young Adult fantasy series). She had a previous life as head writer on Cartoon Network's Ed Edd n Eddy and as a copywriter for LivingSocial. She's also written comics and graphic novels for the animated series Regular Show.

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  • John

    I found work in September 2012, called the DWP and advised them and Working Tax Credit came into the conversation. Gave the very helpful lady the details required and they now pay me £17.50 per week. Even though I did not ask for it, is this correct and if not will they ask for it back?

  • disqus_N0EOK7swk3

    Hi my mother started getting her Pension Credit about 7 years ago. My father was already getting his pension Credit. My was earning a few hunderd pounds a month roughly £400 to £600 but my father simply forgot to mention that in the application. The benefit office has now discovered this discrepency. My mother is happy to give them all the information they require. How far back can the benefit office go back to re-claim the overpayment?

    • moneyaware


      Thanks for your message. As you mention this happened about 7
      years ago, it’s unlikely the Department for Work and Pensions (DWP) will be able to take your father to court to reclaim the overpayment. However they would be able to make deductions from any future benefits he may receive. If he’s working then they could apply for a direct earnings attachment which would mean deductions could be made from his salary at source. There’s no limit to the amount of time they can back-date their claim.

      I hope this answers your question.

      Kind regards,


      • disqus_N0EOK7swk3

        Thank you Laura. I guess the main question is my father was getting his Pension since its start in 2003. My mother who was working at the time didn’t think her salary was relevant towards dad’s benfit. She than joined the benefit in 2008 but forget in her nativity to declare her earnings. Now DWP are aware of her earnings and want her history of employment as there is an overpayment. Will they back date to 2008 when she was added to the benefit or will they go back as far as 2003?

      • moneyaware

        Hi there,

        Sorry for the delay in replying to your message. I can’t say for certain that the DWP will request proof of your mother’s earnings back to 2003, but it is a possibility that they will. I’d suggest that your parents are upfront about the situation and send through the information the DWP asks for.

        I hope this helps.

        Kind regards,

  • Steve Lumley

    i have been told by the DWP that i have been overpaid by £6000 because i did not inform them i had a pension i have the british legion fighing my corner for me as i did inform them and have asked for my taped converstaion of my telephone application but what i am intersted in is if i have to pay this money nack it would be the same as though i had never had it so do i get all the tax back that i paid ?

    • moneyaware

      Hi there Steve, thanks for getting in touch with us.

      Even though we’re not in a position to advise you on this dispute with the DWP, it sounds like you’re doing the right thing in communicating with them about it and seeking help from the British Legion. It may also be worth getting in touch
      with your local Citizens Advice Bureau to see if there’s any further guidance they can give.

      If you’re struggling with your overall finances and need advice on how to manage your budget, we can help you. Our online advice tool Debt Remedy can help you put together a personal action plan in just 20 minutes: http://www.stepchange.org/Debtremedy.aspx

      Kind regards


      • Steve Lumley

        was not really advice i was after in relation to this dispute it was if anyone new about the tax matter – i would have paid tax on this amount now they may be getting a huge proportion of it back what happens to the tax i paid on it they cant have it both ways

  • Blessing Tome

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  • ChewChew

    Hi, Can the local authority make me use my savings of £1,400 to pay off an overpayment for HBenefit and CTBenefit? It was 50/50 mistake, I gave them my information, they added my costs up wrong then I didn’t realise for over a year as the paperwork they sent confused me. I just assumed they had my correct figures so their working was correct. My savings are in an interest account where you get interest on it if you pay in a minimum of £50 per month for 1-3 years. The HB is being reduced to cover repayment of that and the CT I am paying what I can on a monthly basis, but they have asked for more than £200/month which I cannot budget for.

    • moneyaware

      Hi ChewChew,

      If you were taken to court over these debts then there’s potential that you could be made to use your savings to repay these debts. Otherwise, there isn’t a method they could use to take money from your account without your permission.

      It’s your choice, but it may be worth considering paying the debt off out of your savings anyway. Even if you lose some interest, it may be worth it for the peace of mind that you’ll get for having this debt out of your hair.

      Alternatively you could try and negotiate a more affordable monthly installment but obviously that will mean it’ll take longer to clear the debt.

      Kind regards


      • ChewChew

        Thanks for your reply James. I will have to weigh up my options. I stupidly booked a holiday before I found out I Owed this money so I am looking at losing a £200 deposit. Maybe that isn’t a lot to some people, but it is to me. I just hope they don’t charge me anymore for cancelling. Thanks for your help.

  • Katee

    Hi, I wonder if you can help me. I started claiming in oct 14 and 2 weeks ago I had a letter from the fraud department of the council tax, stating I had been claiming 25% discount for 3 years before I claimed. This wasn’t correct as I had been paying full payments , but apparently the housing benefit office sent a memo to them when I started to claim saying I should have had a 25% discount for the previous 3 years. when I started claiming I received a rebate and then paid what I was asked. now a year later they are asking for it back due to their mistake not mine, where do I stand as I feel its their mistake and it shouldnt be me paying for it and being put into debt?? Thanks Kate

    • moneyaware

      Hi there,

      This sounds like quite a complicated situation, so we wouldn’t be able to specifically answer your question on this.

      We’d suggest that you take this up with your council as ultimately it will be their job to check and make sure that you’re definitely liable for the debt.