Tax debts under Self Assessment

Problems paying your tax? guide

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Self Assessment is the system under which HMRC administers tax due on income from self-employment, rental income, capital gains and other sources. It is also used to collect PAYE underpayments of £3,000 or more (see Recovery of underpaid PAYE). Under Self Assessment, you are expected to complete a tax return each year, and to pay tax directly to HMRC.

You may first become aware of a problem when a debt appears on your Statement of Account, or you receive a letter threatening legal action. Soon after that Debt Management and Banking (DMB) will try to contact you by phone. DMB will want you to make immediate payment.

If you have a tax debt problem it’s important to understand these different roles within HM Revenue and Customs. DMB deals with collection of tax due, not with the assessment of income which is the basis of the tax bill. If you can’t pay your tax, the first office to contact is Debt Management and Banking. If you think the amount of tax is wrong or if you need to file tax returns, you may need to contact your tax office as well.

What to do next?

The amount demanded might be wrong

You must act promptly to get the figure sorted out. A simple error, such as a failure to credit a payment you have made, can be corrected by a phone call. But an unexpectedly high tax demand may include a “determination” – an estimate made by HMRC when they have not received your tax return. Even if this is much higher than your true liability for the year, it is legally due and enforceable. The only way to cancel a determination is to complete and send in a tax return. You may need to offer DMB some interim payments while the final tax bill is sorted out.

If your profits have fallen, the ‘payments on account’ included in your bill may be too high.

Go to Section 3 for more details.

You need time to pay

If you owe tax which you cannot pay immediately, then you may want to seek some agreement with DMB to pay your tax by instalments. You will need to complete all outstanding tax returns and explain how you will meet on-going tax bills. The maximum time you will normally be allowed is 12 months, though a shorter timescale is more usual. Interest will still be due on the debt.

Go to Section 4 for more details.

You may be at risk of enforcement action

If you cannot reach an agreement with DMB, you face the risk of enforcement action. It is important to understand what each procedure involves, and the defences that could help you.

Go to Section 5 and then Section 6 for more details.

Glossary

determination
estimated bill sent by HMRC when they have not received your tax return.
DMB
Debt Mangement and Banking. The department of HMRC responsible for debt recovery.