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HRMC Debt Help & Advice

Income tax debt is serious – not least because the Government has a different approach to collecting debts than private companies.

Not only can they repossess your assets, in some cases, they can deduct what you owe from future earnings.

Income tax for employed people

If you are employed, you’ll most likely pay your income tax at source, deducted from your take-home pay. The amount you pay depends on your tax code.

Self-employed people

If you are self-employed, you need to file a tax return and pay what you owe by 31st January, and in some cases, make a second ‘payment on account’ on or before 31st July. This ‘payment on account’ is an advance payment for the following tax year, based on the previous year’s tax. It often catches people out.

Reasons for getting into income tax debt

Income tax, particularly for self-employed people, can be complicated. There are a number of reasons people get into income tax debt and it’s not uncommon to accidentally pay the wrong amount:

  • Tax code errors can lead to long-term underpayment
  • Mistakes can be made when filing self-assessment tax returns
  • Unexpected business expenses can eat up money set aside for tax
  • Unexpected drops in earnings can affect tax budgeting
  • ‘Payments on account’ can be unaccounted for.

Keeping on top of income tax obligations

If you’re employed and are concerned that you owe tax, speak to your employer’s payroll department to check that you’re on the right tax code. If you’re still unsure, speak to HMRC.

If you’re self-employed, setting aside money for income tax is essential. Use one of the many online income tax calculators to estimate how much tax you’ll owe based on what you think you’ll earn, then set this amount aside each month.

You can also keep on top of tax by saving around 30% of your income to cover income tax, national insurance and any student loan repayments you’ll need to make when filing your tax return. It may not be the exact figure, but it’s a good average.

If you’ve just moved into self-employment, remember that you may need to make a ‘payment on account’ after filing your first tax return. This is typically around half of what you paid in January and will become due in July.

What to do if you are self-employed and have income tax debt

Once you’ve filed your self-assessment tax return, you’ll know how much you owe and when you need to pay it.

If the payment deadline is approaching and you think you won’t be able to pay, contact HMRC and ask about a ‘time to pay agreement.’ HMRC may agree to let you to pay late, but they will typically charge interest and fees. It’s normally easier to arrange this before the deadline, rather than after, having missed a payment.

If you don’t pay what you owe by the deadline, you will be charged interest and penalties which can be as high as 5% of the original amount owed. These can quickly add up.

If your income tax remains outstanding, HMRC can use debt collectors to chase outstanding payments. If the debt is less than £2,000 and is less than a year old, they may also pursue you through the Magistrates court.

In other circumstances, HMRC may petition to have you made bankrupt, or seek a County Court Judgement against you.

If you have received your tax bill and are struggling to make payments, contact a trained Creditfix advisor today. We can help with free, impartial advice.

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