UPDATE – in 2020 if you can’t pay a tax bill because of Coronavirus, there is additional help from HMRC. You can:
Contact the HMRC coronavirus (COVID-19) helpline if you cannot pay any other tax bills because of coronavirus.
This is a guest post by Tax Aid, a charity that helps people on a low income with tax problems.
If you can’t afford to pay a tax bill when it is due, you will often want to make a “time to pay” arrangement with the tax man. You may be asked questions that feel very personal, such as what your expenses are – this is because HMRC is more likely to make an arrangement with someone who they feel “can’t pay” rather than “won’t pay”.
HMRC doesn’t behave like other creditors such as banks or credit cards. Here are ten things you need to know about a “time to pay” arrangement:
1. Debt Collection Agencies (DCAs)
Sometimes you may be contacted by a DCA on behalf of HMRC. You can check the agency is genuine by comparing it to the list on the Gov.uk website. DCAs have broadly the same powers as HMRC to agree time to pay over up to 12 months. They will not have any understanding of how the debt has arisen so if you don’t think the amount is correct you should query this with HMRC and not the DCA.
Sometimes HRMC ask DCAs to collect only part of a debt (eg late filing penalties for one particular year) and so the amount being pursued may not be the total amount due. It is important that you are aware if this has happened – you don’t want to offer all your spare income to the DCA if HMRC will still expect to be paid for the rest of the debt.
DCAs are authorised to contact taxpayers by phone and letter; they don’t carry out personal visits. If the DCA fails to reach an agreement with you they will refer the case back to HMRC to consider further enforcement action.
2. Lump sums
HMRC’s Debt Management and Banking Department (DMB) is very unlikely to accept a lump sum of less than the tax due in full settlement.
But if you can offer a lump sum this may help to persuade DMB to accept the rest of the tax over a longer period of time. You should ask HMRC to agree this in writing before paying over the lump sum. Lump sum payments may not be a good idea if bankruptcy is a possibility.
3. Only offer what you can afford
When making a proposal, be careful not to offer more than you can afford. If you fall behind with an agreed schedule of payments, HMRC may end the agreement and start enforcement action against you. If you know in advance that you are likely to miss an instalment, contact HMRC at once and try to negotiate an extension.
4. If your bill is incorrect
If you feel under pressure to pay a bill which you think is incorrect, or one which includes a “determination” (an estimated bill), then you should seek advice. You may need to make a provisional agreement with HMRC to pay some of the tax bill, while the correct amount is worked out or while penalty appeals are being considered for example.
5. Suspension of collection action for a period
HMRC will only consider giving you more than 12 months to pay your tax in exceptional circumstances.
However, DMB may agree to suspend payment demands for a period if you are temporarily unable to pay the tax. This might because you are unemployed or have short-term business problems or are ill. Typically, such an agreement may last for three or six months, with a review of your circumstances at the end of that period. DMB may also agree to give you extra time to settle your bill if you need time to raise funds, for example by selling a property.
6. Reducing payments on account (where tax bill lower than last year)
Often your tax demand will include “payments on account”. These are due on 31 January and 31 July, and are based on the previous year’s tax bill. If you think that your tax bill this year will be lower than the previous year, you can “claim to reduce the payments on account”. This can be done on-line if you are registered for self assessment on-line, or by phoning 0300 200 3310. Alternatively you may download and send in form SA303.
7. Waiver of tax (remission)
Very occasionally HMRC decides not to pursue payment of a tax bill. This is sometimes known as remission. The tax is not permanently written off, but you will not receive further demands unless your circumstances improve unexpectedly. Remission is most common in the case of a person who is elderly, sick or long term unemployed, and has no assets and lives in rented accommodation. If you have a house with equity remission is not likely to be given.
If you think you might be eligible for remission, you can seek advice from TaxAid on how to put your case to DMB.
8. Freezing of interest
HMRC is obliged by law to charge interest and cannot agree to “freeze” interest on the tax in order to help you to clear the debt.
9. If Debt Management & Banking accepts your proposal
If DMB or a DCA appointed by HMRC agrees to your request for time to pay, you should receive confirmation of this in writing. If you get an agreement at a meeting or on the telephone, ask for it to be confirmed in writing. If not, there could be difficulties later if there is a dispute over exactly what was agreed.
Having an agreed payment plan in place will mean that you avoid further late payment penalties.
10. If Debt Management & Banking rejects your proposal
DMB has a duty to consider your proposal, but there is no automatic right to a time to pay arrangement. If you believe that your request has been rejected out of hand, without being properly considered, you can make a complaint and ask for your proposal to be referred to a more senior official and for a full response in writing. HMRC are more likely to refuse requests for a payment plan if it appears that such requests are being made routinely, year after year.
If you fail to get agreement you should still pay what you can, when you can, unless for example it appears that bankruptcy might be inevitable. If you fail to agree a payment plan with DMB then recovery action is likely to be taken. Recovery action may include legally taking control of goods, court action in the Magistrates’ Court or County Court, or Bankruptcy proceedings.
TaxAid Tip: If you have not yet fallen behind with your tax payments, but expect to receive a demand in the near future which you will be unable to pay, contact HMRC’s Business Payment Support Service (BPSS) on 0300 200 3835. The BPSS can agree a payment arrangement in advance, which may be easier than negotiating with DMB after a demand is received. See If you can’t pay your tax bill on time for more information.
Debt Camel says:
If you have other debts as well as owing money to HMRC, you should get help with those. Non-priority creditors such as credit cards may have to accept less, perhaps only token payments, whilst you clear your tax debt. National Debtline, or Business Debtline if you are self employed, can help you look at the full picture.