It is natural being afraid of the unknown but it’s far better to address the unfavorable aspects of any course of action than to refrain from confronting the issues entirely. The IVA (Individual Voluntary Arrangement) process is just one of those that a person may have an illogical fear of.
Tax Credits Overpayment
If you are contemplating going into an IVA, one thing that you might want to have a look at is whether you may have been overpaid Tax Credits in previous years. If you learn that you have been overpaid, you can and indeed must enter the overpayment as a debt in your IVA proposal, subject to one condition. The overpayment must have been ‘determined’ before the date of acceptance of the IVA.
If you are convinced that you have been overpaid tax credits you should make contact with HM Revenue & Customs otherwise known as HMRC at your local tax office and bring your concern to HMRC authorities. Whenever requested, HMRC can provide a Statement of Account (SOA) and will do so as quickly as possible using your latest earnings information. It is not necessary to be insolvent to sort out a Tax Credits issue. It can be done at any time as is within your rights.
What exactly does the phrase ‘determined’ mean in the circumstance of Tax Credits? The word ‘determined’ simply means that the overpayment of Tax Credits was included in a Final Award Notice (FAN) or in an SOA given by HMRC.
If such a determination hasn’t been made, HMRC are not likely to include any overpayment as a debt in the IVA, irrespective of whether any overpayment is now being recovered (or might be recovered) by restriction of an ongoing Tax Credits award. The reason for this is that HMRC has no way of readily determining the amount (of overpayment) owing.
HMRC will claim to rank for dividend all overpayment of Tax Credits determined ahead of the date of acceptance of the IVA. In addition, HMRC will not claim to rank for dividend any overpayment of Tax Credits determined after the date of IVA approval, regardless if it was related to a period prior to IVA approval or not. Such overpayment is going to be reclaimed from you by HMRC as a post approval debt. There’s no question therefore that it is in your financial interest to have any such overpayment joined as a debt in your IVA rather than to have to cope with it separately.
Tax Credits and couples
In situations where you are marriedor co-habiting and where your partner or spouse is solvent and is for that reason not entering into an IVA themselves, it is crucial to differentiate whether the Tax Credits overpayment was made to you; the person in debt or to your solvent partner or spouse or indeed jointly to both of you. If an overpayment was made jointly to both of you and if the necessary determination as to the amount of the overpayment was made ahead of the date of acceptance of the IVA, HMRC will most likely input a claim for the debt, in the amount of the full overpayment, into the IVA and HMRC will also get ranking for dividend with the claims of the various other unsecured creditors. The solvent partner continues of course to be liable for settlement of the joint debt as a whole as per the principle of joint and several liability and HMRC will go after settlement from that source, mitigated to the amount of any dividend paid from the insolvent partner’s IVA.
Following the approval of an IVA and once again as long as the amount of overpayment of Tax Credits was established prior to the approval of the IVA, then any restriction of an ongoing award of Tax Credits ought to cease immediately and payment of your Tax Credits award ought to return to the normal level with no reduction in respect of preceding overpayment. This is in contrast to Bankruptcy where reduction of recurring award might continue after you are made bankrupt.
If these HMRC rules and procedures are unclear to you, the Insolvency Practitioner who is acting for you in the preparation of your IVA proposal, ought to clarify all of these issues well in advance of applying for your IVA. Entering into an IVA should not leave you any worse off financially in so far as tax credits go and in many cases you will be better off, particularly if you have received sizeable overpayments of tax credits in the past.