Her Majesty’s Revenue and Customs (HMRC) handle debts that relate to VAT, National Insurance, income tax arrears, and other tax debts. If you owe any of these, it’s vital that you deal with them as soon as possible.
The urgency is because these are considered ‘priority debts’, meaning the consequences of not paying them are serious and include court action, bailiffs – and in some extreme cases, even imprisonment.
In this guide we’ll explain how to get in control of these arrears – and some of the situations that can occur if you don’t.
Getting in control of tax arrears
Getting back into control of your HMRC debts doesn’t have to be hard – even if it feels like a bit of an intimidating task.
It’s easy to assume a large government organisation like the HMRC is always right with their calculations – but it’s not always the case – so it’s best to double check and be certain that what you owe is correct.
- Have you provided them with up to take figures for your business takings?
- Have you made sure all your business expenses are in order?
- Do they have all your information correct on the correspondence they’ve sent?
If any of this information isn’t exactly right, it can lead to miscalculations and sometimes over-estimations of what you should pay.
If you’re self-employed or run your own business and you’re not certain – talking to your accountant can be a big help.
When you’ve got an accurate tax debt figure, the next step involves putting a budget that will help you plan how to tackle that debt.
To start with you should calculate how much you take personally from the business each month. If you do this formally with a set figure each month this will be simple – if on the other hand, you take a different amount month-to-month, work out an average amount based on the previous 3/6 months. This figure is your income.
Calculating essential outgoings
There are payments you make each month that mean you keep food on the table and a roof over your head – these are your essential outgoings. Add up costs that relate to mortgage or rent, essential transport costs, utilities bills, essential food and clothing costs – and so forth.
As well as these costs, you’re likely to have costs that you’re contractually obliged to pay – for example, contract mobile phone costs, finance and credit card payments – and similar. Even if these aren’t vital, you’re obliged to pay them, so add them to your outgoings.
Calculating disposable income
When you have these figures, take the essential outgoings figure from your income figure and you’re left with a disposable income amount.
This might look like a lot – it might look like very little, but it’s important that it’s accurate as it’s going to form the basis of what you can afford to pay the HMRC to settle your debt.
Don’t worry – it’s unlikely they’ll expect you to pay all of this amount, they understand that savings and being able to live a normal life is important, but as this is a priority debt and will need to be cleared as quickly as possible.
Talking to HMRC
When you have a figure that you can afford to pay each month, you should speak to HMRC to discuss setting up a regular payment plan.
To speak to HMRC you can call 0300 200 3300. Don’t worry if you work long hours – during the week their lines are open between 8am and 8pm – and between 8am and 4pm on Saturdays.
HMRC work on a year-to-year basis – and to avoid rolling your debt into next year, they’ll try to set up a repayment plan that has it cleared this financial year.
This can sometimes lead to them requesting a payment that you simply cannot afford – while it’s important to work on repaying them, you also need to make sure you don’t get into financial difficultly elsewhere – so pay what you can afford – and offer to show them your budget if they require proof.
Even if HMRC request a larger amount that you can make now, make a payment if you can, it’s better to be paying something that there be any misunderstanding that leads them to think you’re not going to pay owed tax.
Stay in touch
One of the worst things you can do when you owe money is to stop talking to your creditors – and the same applies with HMRC. If you’re struggling to pay your tax bill, speak to them before it’s missed.
Make sure they have up-to-date contact information for you, whether it’s a phone number or email address. If you’re in a position to make an overpayment, do so – it can help buy some breathing space if you have a tighter month further down the line.
The recovery process (and any punishment associated) will go ahead, even if you don’t stay in touch, so it’s better to be informed.
What happens if you don’t pay HMRC debt?
When you owe money to HMRC they may not chase it in the way you would expect a company to do so. A credit card, loan or utilities company will call numerous times and send reminders, before passing your debt on to a debt collection agency. Debt collection agencies may then come to your home.
HMRC, on the other hand, will follow a formal process that escalates quickly. Before things get to that stage, you should consider setting up a Time to Pay Arrangement with HMRC.
Time to Pay Arrangement
Time to Pay is an arrangement you can strike with HMRC in order to repay your taxes or other debts. The process works by allowing you to spread the cost of what you owe over a series of installments.
The details of your arrangement, including how many installments you will make, and how much money you pay in each installments, depends on your situation. You can find out more about setting up a Time to Pay arrangement on the gov.uk website, here.
Action HMRC can take includes:
If you refuse to repay money owed to HMRC, or default on your time to pay arrangement, there are a series of actions they can take, up to and including court action. Below are some of the actions HMRC can take.
Applying to the courts for a County Court Judgement (CCJ)
Legally outlining a repayment plan an significantly impacting your ability to get credit in the future. Failure to pay a CCJ can lead to more serious consequences, as well as putting your home and business properties at risk if a ‘charging order’ is then applied for.
Issuing a magistrates’ court summons
You will be required to attend with details of your business and personal finances. A payment plan will be decided – which must be kept to. Failure to stick to a court decided payment plan can lead to further court appearances – and even prison if it’s decided you have the money but haven’t made payment.
Starting bankruptcy proceedings
If your debts total more than £5,000, bankruptcy can be sought by HMRC which will lead to assets you own (including your home) being sold to settle your debts. You will not be able to hold a directorship during your bankruptcy and your credit rating will be severely impacted, almost certainly leading to consequences for your business.
Applying for an attachment of earnings
Where, if you’re employed, a significant amount of money can be taken from your wage prior to it reaching you.
Seizing money you have saved
In some instances, HMRC will take money directly from your savings accounts, although to do so you must have more than £5,000 remaining in savings when the debt is settled.
Who can support you with HMRC debt?
If you need some support handling your HMRC debt issues, there are a number of UK charities who can help:
- Business Debtline – Support for self-employed people across the UK with debt and money management issues – 0800 197 6026.
- Citizens Advice – Helping individuals with personal and business issues – with specialist debt advisors who can advise on business finances – 03444 111 444.
- TaxAid – A resource for people on low incomes whose problems cannot be resolved by HMRC – 0345 120 3779.
Act now on priority HMRC debt
Although it might be tempting to wait until tomorrow to handle money that you owe to HMRC – they won’t be waiting to take action against you.
Speak to them today, make arrangements to pay what you can afford – and keep in contact every step of the way.
While many personal debts can be caught up with and action prevented, even late into proceedings – HMRC are more formal and their processes are often less forgiving then other creditors.
Don’t take a risk with your financial and business future.