If the officer from DMB is unable to recover your tax by distraint, and the amount is large, then he may immediately transfer the file to HMRC’s Enforcement & Insolvency Service for consideration of bankruptcy proceedings (see next section) In other cases he will probably seek a judgment (CCJ) in the County Court, which orders you to pay the amount due.

The main disadvantage of a County Court judgment is that it will affect your credit record. On the “plus” side, there is a procedure to ask the court to order the debt to be paid by instalments, and County Courts can be quite sympathetic in allowing time to pay. In many cases County Courts order payments at a level previously rejected by DMB in negotiations.

Most County Court actions are conducted purely by paperwork. It is unlikely that you will be required to attend a hearing.

If you fail to make any payment due under a court order, DMB will usually pass your file to the HM Revenue and Customs’ Enforcement & Insolvency Service office to consider proceedings for bankruptcy. Unlike other creditors they rarely opt to enforce through the County Court instead.

Things you need to do

You need to act quickly.

Consider: is the amount HMRC are suing for correct? If not, you cannot leave it until you are in Court as the Court has to accept HMRC’s position that tax has been charged and has not been paid. If you are disputing the amount of the debt get some additional time to sort it out by contacting DMB and asking them to delay court action.

Note that, if a Court action is brought by other creditors, you should ensure that any tax debt is taken into account in determining what you can afford to pay, or you may find that you remain incapable of paying your debts. It may take a while to agree with HMRC the correct amount due and, if in the meantime HM Revenue and Customs has obtained a judgment for the full amount claimed, the debt due under the judgment is reduced to reflect the correct amount due.

What happens first

You will receive a County Court claim which lists the amounts claimed by HM Revenue and Customs together with their administration costs (shown on the claim form as Solicitor’s costs) and the court costs. The claim is accompanied by a response pack, which contains three forms:

• Defence and counterclaim
• Acknowledgement of service
• Admission

The first two forms are needed if you wish to contest the claim, and the third form to ask for time to pay.

It is always worth completing the Admission, if you want to pay by instalments, even if you cannot offer very much. You should offer only what you can genuinely afford. If you offer more than you can manage, and the court makes an order for instalments at that level, and you then fail to meet the payments due, HMRC can take further enforcement action.

If you do nothing

If you do not respond at all within 14 days from the service of the claim, DMB can ask the court to enter judgment against you. You will then receive a document from the court stating that a judgment has been given for the amount claimed by HM Revenue and Customs, and that payment must be made “immediately”.

If you do not pay in response to this demand, HMRC can ask the Court to enforce its judgment. The Court has powers to require you to attend Court and provide evidence of your means (ability to pay) and may authorise direct payment by attaching your income through your bank or employer. If you ignore such a “Judgment Summons” you may be imprisoned for contempt of Court.

In practice however if local court action is unsuccessful and the debt is more than £2000, the case will usually be referred to HMRC’s Enforcement & Insolvency Service for consideration of bankruptcy proceedings.

Contesting the claim

If you think that the amount shown in the claim is wrong, you might feel encouraged to contest it in the County Court, using the Defence and the Acknowledgement of service forms contained in the response pack. However, these are standard forms that are sent out by the County Court with claims for all kinds of debts, and the paperwork does not tell you that it is very difficult to contest a claim by HM Revenue and Customs successfully in the County Court because the certificates that will be produced by HMRC, stating that tax has been charged and has not been paid, must be accepted by the court as sufficient evidence that the tax is due. So there is hardly ever any point in contesting the amount through the court.

There is an additional reason for not contesting an estimated tax demand in court. This is that HMRC will deny ‘Special Relief’ if a taxpayer is present or legally represented in Court at recovery proceedings in respect of an estimated tax debt. Special Relief is a procedure which can be used to displace and estimated tax bill in circumstances where it would be ‘unconscionable’ to enforce the debt.  This can be a  hard condition to fulfil. (For details, see  http://www.hmrc.gov.uk/manuals/sacmanual/SACM12215.htm )

If you do think that no tax is due or that the figures on the claim are wrong, take the matter up with HM Revenue and Customs directly. At the same time, ask Debt Management to delay asking the court to enter judgment. This can help to avoid the situation, for example, where HMRC obtains a judgment and it is later agreed that there was actually no tax to pay.

If, having looked into your case, HMRC accepts that there is nothing due, it should take no further action on the claim. If it accepts that there is just a small amount due, Debt Management may agree not to obtain a judgment if you can pay it fairly quickly.

Order to Attend Court for Questioning

Following a judgment for a debt, the Court will normally ask for details of your income and assets. The Court needs this information in order to decide if any offer to pay is reasonable. If you do not supply this information, the Court may issue an Order to Attend Court for Questioning. This is a letter sent by the Count Court requiring you to attend a meeting with a court official to explain your financial circumstances. Failing to appear in Court following such a notice is a serious offence. It is treated as contempt of court and the penalty can be a fine or even imprisonment. It is important to remember that the risk of prison is NOT because you can’t pay, but for ignoring the court’s order (contempt of court). For more information, please see under ‘How county court judgments are enforced’ on the direct gov website at http://www.direct.gov.uk/en/MoneyTaxAndBenefits/ManagingDebt/Makingacourtclaimformoney/DG_195828

Asking the court for time to pay

If you accept that you owe all or part of the amount claimed, and you do not have the means to pay it, then HM Revenue and Customs will want judgment entered against you. A court judgment can require payment immediately.

To avoid this, you can ask the court to make the judgment debt payable over a period of time. This is done by completing the Admission form that comes in the response pack. You give details of your financial situation and make an offer to pay based on what you believe you can afford, (usually) a certain amount each month, or (less often) the full amount by a specified date in the future.

After completing the Admission, you send it to HMRC at the address shown on the claim. This must be done within 14 days of the date the claim was served on you, so that the Court has this information and the Revenue’s comments available when making their judgment.

If HMRC is not happy with the proposal you have made, it will advise the court of this, but it is for the court to decide the payments that will be ordered. And this will usually be done by the court staff without a hearing.

You will then receive a document from the court stating that a judgment has been given for the amount claimed by HMRC, and how payment must be made. The court may well order payment in accordance with what you offered on the Admission form.

Once judgment has been given, you must make payment in accordance with it. If you do, HMRC cannot take further enforcement action in relation to that debt. If you fail to do so, HMRC can take further enforcement action – and they are known to be extremely harsh in respect of broken agreements – so it is vital that you inform HMRC if your circumstances have changed radically and you can no longer afford to keep to the Court agreement.

You should then apply to the court for a variation of the order, to reflect what you can afford to pay. The procedure is very similar to that for an Admission (described above).

Getting help

County Court claims, procedures and forms can be difficult and you may want to get help.

If there are problems relating to the amount of tax due, or negotiating with HMRC, and you cannot afford to pay an accountant or tax adviser, you may contact TaxAid (See TaxAid helpline page ).

Advice on court procedures and forms is available from Citizens’ Advice Bureaux and law centres. County Court staff can also be very helpful.

Useful guidance and downloadable forms may be found on Her Majesty’s Courts Service website www.hmcourts-service.gov.uk