You need time to pay

Problems paying your tax? guide

4

Seeking time to pay

Once you have established that this is a “true” debt, if you can’t afford to meet it you may need to negotiate time to pay.

Although tax should normally be paid when it falls due, DMB may allow you to pay your tax over a period of weeks or months (and sometimes even longer).

Interest will be added although the amount involved may be small and, unlike some other creditors, HM Revenue and Customs has no discretion over the amount of interest charged. It cannot “freeze” the interest to help you to clear the debt.

If you try to seek an agreement, DMB will want to know why you can’t pay the debt immediately and in full. Normally you will make contact with DMB by phone. You should be aware that you may be asked a lot of personal questions. For example, DMB may want to know what other members of your family earn, or what you spend on clothes or holidays.

From your point of view, the only reason for having such discussions is to try to avoid DMB taking enforcement action against you. You can choose not to discuss matters, but you then increase the risk of enforcement action, as DMB may feel that they have no other way of collecting the debt.

There are some additional topics covered in the ‘Practical Pointers’ section (pages 12 /13 ) of TaxAid’s tax debt guide, which can be downloaded from the Problems paying your tax page.

Depending on your circumstances you might ask DMB for:

• a payment arrangement

• suspension of collection action for a period

• waiver of the tax.

Payment arrangements

Most agreements involve making a payment arrangement. Typically you offer to pay a certain amount each week or month, until the tax plus interest is cleared. Taxpayers with a good compliance record – those who have previously paid their tax on time and kept their returns up to date – can make a good case for an arrangement that suits their current circumstances. The essence of DMB’s approach is to separate taxpayers into two categories, the genuine “can’t pay” and the “won’t pay”. Taxpayers who make no attempt to contact DMB are treated by default as people who “won’t pay”. Individuals who come to Voluntary and Community Sector organizations for advice are normally treated as genuine “can’t pay” cases, once contact with DMB has been made.

“Can’t pay” taxpayers who want a payment arrangement will be expected to:

• complete all outstanding tax returns very quickly

• pay the arrears of tax, plus interest, surcharges and any penalties over the period of the arrangement

• show that they can provide for on-going tax bills that will arise during that period.

The maximum timescale allowed for doing this will normally be 12 months.  Current DMB guidance is that periods over 12 months will only be permitted in exceptional circumstances. VAT or PAYE from an employer are normaly collected on a shorter timescale. In practice DMB normally wants the money paid much quicker than this.

Even with a time-to-pay agreement in place, interest will still be charged on any overdue tax.

On occasion you may be under pressure to reach an agreement to pay a bill which includes a “determination” then the tax, surcharges, penalties and interest due under the arrangement will be revised when your tax returns have been submitted. It can become very complicated to track which bits have been paid, which are still owed and attracting interest and penalties. You can ask for a full statement of account from DMB to list your transactions.

DMB will require details of savings and other assets plus full income and expenditure information before an extended time to pay agreement is accepted. Short-term time to pay agreements of a few months duration only, may be agreed with less detailed information.

DMB prefer this information to be given by phone during the initial contact if possible. Your expenses will be reviewed by the Debt Management officer and any which are thought to be unusual, large or exceptional may be challenged. It may well be worth taking advice to help prepare these figures.

You will need to agree a payment plan with DMB. This plan must cover not only the tax currently outstanding, but also any future tax liabilities as they arise during the period of the plan. This would include “payments on account” in January and July if you are self employed.

You are more likely to receive a sympathetic response if there are exceptional, unforeseen reasons why you can’t pay, such as a sudden illness, or the insolvency of a major customer.

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, consider contacting HMRC’s Business Payment Support Service(BPSS) on 0845 302 1435. The BPSS can agree a payment arrangement, which may be easier than negotiating with DMB after a demand is received. For more information see http://www.hmrc.gov.uk/payinghmrc/problems/bpps.htm

If your request is accepted

If DMB, or a debt collection agency appointed by HMRC, agrees to your request for time to pay, you should receive confirmation of this in writing. If you receive a verbal 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 the surcharges normally due on tax unpaid 28 days and six months after the due date.

If Debt Management & Banking rejects your proposal

DMB has a duty to consider your proposal. If you believe that it 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.

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 (previously known as distraint), court action in the Magistrates’ Court or County Court, or Bankruptcy proceedings.

Other points on time to pay

Lump sums

DMB is most unlikely to accept a lump sum of less than the tax due in full settlement. But an offer of a lump sum may help to persuade DMB to accept the rest of the tax over a period of time.

For example, Julian owes £2,000 in tax but has no money or other assets and is unemployed. He does not want to face enforcement action, and he tells Debt Management that his mother will give £1,000 towards settling the debt if HMRC will agree to write off the rest. Debt Management may not agree to this, even though HMRC are likely to receive nothing if it proceeds to enforcement action (since Julian has no income or assets).

Only offer what you can afford

When making a proposal, be careful of offering more than you will be able to afford. If you fall behind with an agreed scheme of payments, you may try to renegotiate, but you will have lost some credibility and the Debt Management officer may decide to proceed to enforcement.

Short delays while you sell an asset

If you are requesting a short delay, for example to allow you to raise funds by selling a property, or your business, DMB may agree to grant the extra time.

Reducing payments on account (where tax bill lower than last year).

Commonly a tax demand will include “payments on account” for the latest tax year. These are due on 31 January and 31 July, and are based on the previous year’s tax. If you think that your tax bill will be lower than the previous year, you can “claim to reduce the payments on account” by completing a form SA303. This can be downloaded from ww.hmrc.gov.uk(search for “SA303”), or you can request the reduction by phoning the HMRC office shown on your statement.

Suspension of collection action for a period

DMB may agree to suspend making demands for a period if you are temporarily unable to pay the tax, for example because you are unemployed or have business or health problems that should end fairly soon.

Typically, such an agreement may last for three or six months, with a review of your circumstances at the end of that period.

Waiver of tax

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 of particular value. If these are your circumstances you might want to contact TaxAid’s helpline 0345 120 3779 for advice on to how to put your case to DMB.

Freezing of interest

HM Revenue and Customs cannot agree to “freeze” interest on the tax, so as to help you to clear the debt. HMRC is obliged by law to charge interest.

Glossary

DMB
Debt Management and Banking department of HMRC
determination
estimated bill sent by HMRC when they have not received your tax return.
PAYE
Pay As You Earn. The term here refers to the accummulated income tax and National Insurance Contributions deducted from employees' wages which should be paid to HMRC each month.