Benefits Overpayment — What to Do When DWP or HMRC Says You Owe Money

If you receive a letter saying you’ve been overpaid benefits, it can feel alarming. But you have rights — to challenge the decision, to negotiate the repayment rate, and in some cases to have the debt written off entirely. This guide explains what happens and what you can do.

Why Benefits Overpayments Happen

Overpayments occur for several reasons, and the category matters for what happens next:

If you receive an overpayment notice, the letter should state the reason code. This is important for deciding whether to challenge it.

Which Benefits Can Be Overpaid and Recovered

How Overpayments Are Recovered

From Ongoing Benefits

If you’re still receiving benefits, DWP will usually deduct the overpayment directly from your payments:

Standard UC allowances in 2026/27:

From a Lump Sum or Employment

If you’re no longer on benefits, DWP may:

• Ask for a lump sum repayment
• Issue a civil penalty notice
• Take court action (rare for smaller amounts)

For Tax Credit Overpayments

HMRC recovers tax credit debts by:

• Deducting from future tax credit awards
• Deducting via your tax code
• Direct payment request

Challenging an Overpayment Decision

Step 1: Mandatory Reconsideration

You have one month from the date of the overpayment decision to request a mandatory reconsideration (MR). This is a DWP/HMRC review of the original decision.

Write to DWP or HMRC explaining:

• Why you believe the overpayment decision is wrong
• Any evidence of official error
• Any reason recovery would be unfair

Step 2: Appeal to Tribunal

If MR is unsuccessful, you have the right to appeal to the Social Security and Child Support Tribunal within one month of the MR decision. The tribunal is independent and free of charge.

Official Error — Universal Credit

For Universal Credit, if the overpayment was caused by official error and you “could not reasonably have been expected to realise you were being overpaid” — DWP should not recover the amount. This is a legal test and worth pursuing if DWP made a clear mistake.

If You Can’t Afford the Repayment Rate

DWP must consider your financial circumstances when setting a repayment rate. If the deduction rate is causing hardship:

1. Contact DWP and ask for a lower deduction rate
2. Provide evidence of your income, outgoings, and essential expenses
3. Request a temporary suspension if you’re in acute financial crisis

DWP guidance says they should not recover in a way that leaves you unable to meet essential needs.

Hardship Exemptions and Write-Offs

DWP can write off an overpayment debt in exceptional circumstances:

• Severe financial hardship where recovery would be unjust
• The claimant has died and the estate cannot meet the debt
• Small amounts where recovery costs exceed the debt

These are not automatic — you must apply and make the case. Contact your local DWP office or Citizens Advice for help.

Tax Credit Overpayments — Special Rules

Tax credit overpayments are handled by HMRC and have slightly different rules:

• HMRC typically disputes recovery if the error was HMRC’s and it would be unfair to recover
• You can ask HMRC to waive recovery if paying would cause genuine hardship
• The complaint process goes to the Adjudicator’s Office, then the Parliamentary Ombudsman
• Time limit for recovery through tax system: approximately 7 years

Protecting Yourself From Future Overpayments

The most common cause of overpayments is failing to report changes promptly:

For Universal Credit, update your journal promptly. Keep screenshots of all changes you report.

Where to Get Help

Related Guides

• How to Appeal a Benefit Decision
• Universal Credit Appeal Guide
• Universal Credit Hardship Payment
• Benefits Sanctions Explained
• Universal Credit Advance Loan