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Can debt collectors add their fees onto your debt?

Don't know if this is the right place to ask but need help!
Last year I did some work at a call centre through an employment agency, which finished in September last year. Then in April of this year I got a letter saying that through a timesheet error (on their part) they had overpaid me by 40 quid- the previous July! So this was nine months after the alleged overpayment & six months after I'd left the employment agency!
I thought this was extremely dodgy & sent them a letter saying that I refused to pay the amount as I didn't think they were entitled to it (due to the law relating to mistake). They have ignored my letter and passed it onto a debt collection agency who have added their fees onto the original debt of £41, bringing it up to £116.

My question is, are they allowed to do this? I've heard that debt collectors are not allowed to add their fees onto the original debt. Is this true? And if so can I report them?
Please help!

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