Tax Credits legacy
Tax Credits (Working Tax Credit and Child Tax Credit) are being replaced by Universal Credit. Overpayments from legacy Tax Credits are still being pursued through HMRC.
These overpayments can arise from many sources: unreported changes in income, mistakes on renewal, changes in household composition, or HMRC error.
Debt solution treatment
Tax credit overpayments are unsecured debts owed to HMRC. They can be included in a DRO, IVA or bankruptcy on the same basis as other HMRC debt.
Once included, HMRC cannot pursue the historic overpayment during the debt solution.
Recovery from ongoing benefits
HMRC and DWP can normally recover overpayments by deduction from ongoing benefits. This is a routine collection method that runs alongside DRO/IVA/bankruptcy processes in complex ways.
For DRO purposes, the deduction is technically not a payment on the debt from you — it is HMRC/DWP exercising their statutory recovery power. The interaction with the DRO moratorium is one of the areas where getting specialist help is worthwhile.
In practice, most cases are handled cleanly — the overpayment is included in the DRO, the deductions stop, and the debt is written off on discharge.
Universal Credit overpayments
UC overpayments are treated similarly to Tax Credit overpayments. They are unsecured debts and can be included in debt solutions.
DWP can also recover UC overpayments through deduction from ongoing UC payments.