Tax debts under Self Assessment
Problems paying your tax? guide
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, 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 and can’t pay, it’s important to understand the 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 another part of HMRC as well – such as the Taxes Helpline – 0300 200 3300, or the Self Assessment Helpline 0300 200 3310.
What to do next?
The amount demanded might be wrong
You must act promptly to get the figures 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.
Penalties for late filing of tax returns are high – up to £1,600 a year or more, even if no tax is due. If your bill includes late filing penalties, you should look at the section on late filing penalties, as well as the other pages in this guide.
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.
- estimated bill sent by HMRC when they have not received your tax return.
- Debt Mangement and Banking. The department of HMRC responsible for debt recovery.
- payments on account
- provisional amounts of tax payable until your final bill for the year is worked out. Due 31 January and 31 July