I have just received this reply from DWP which seems to contradict the advice Linda got! I am going back to them!

“Where an award is still in place you should continue to take it into account even if it is overpaid and likely to be recalled. This is because while the credit is being received it will be income. There are two types of recovery, one of which is being made in-year, the other is being recovered from the following tax year.

If the overpayment is being recovered from the tax credit that is still in payment, eg WTC overpaid and recovered from CTC, then you need to deduct the overpaid amount (WTC) from the balance left to pay (CTC) and apportion this over the relevant period. This period will be from the date of the award letter (date of change) to the end of the tax year.

If there is only one tax credit in payment and the amount being paid is reduced because of the recovery of the overpayment, you need to know what the overpaid amount is or the new balance of the annual award that is actually to be paid. The principle is the same as above in which you are taking the amount actually paid into account. This will mean that HB increases because of a reduced income. However, this should balance out as previously a higher tax credit income was taken into account which meant less HB.

Just for your information, regulations are currently in the process of being laid where an overpayment of a tax credit in the previous tax year is recovered from a tax credit made in the following tax year. A circular will be issued to local authorities as soon as the regs have been laid”