Dealing with County Court proceedings
Problems paying your tax? guide
There is no set order of events with tax debt: HMRC will take whatever action it considers to be most effective in the individual case. But in many cases, HMRC will first consider recovering the debt through PAYE or taking control of goods, before moving on to Court Action. (In Scotland, where HMRC does not have its own power to seize goods, Court action is likely to be the first stage).
If the debt is large, DMB might omit the Court stage and transfer the file straight to HMRC’s Enforcement & Insolvency Service for consideration of bankruptcy proceedings (see next section). In other cases DMB will probably seek a court 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, you can make an offer to the court to pay by instalments. The County Court can be quite sympathetic in allowing time to pay. It may 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 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, don’t leave it until you are in Court as the Court has to accept HMRC’s position as to the size of the tax bill.
If you think the tax bill is wrong, you will need to resolve this directly with HMRC. Try to obtain HMRC’s agreement to an adjournment of the Court hearing to give time to sort this out.
If you have a number of debts, and Court action is taken by other creditors (rather than by HMRC), you should ensure that any tax debt is taken into account in determining what you can afford to pay. If you don’t do this, you may find that you are still unable to pay the tax debt and further action may be taken against you.
It may take a while to agree the correct amount of the tax debt with HMRC. If in the meantime HMRC has obtained a judgment for the full amount it initially claimed, the debt due under the judgment will be reduced to reflect the corrected figure.
Do not challenge an estimated tax debt in court. Instead, negotiate with HMRC and either submit any outstanding tax returns to displace the estimate or, if it is too late to submit a tax return, make a claim to Special Relief (see section 7).
What happens first
You will receive a County Court claim which lists the amounts claimed by HMRC 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
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 HMRC, 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 does not result in the debt being paid, and the debt is more than £2,000, 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 when you are out of time for filing tax returns in the usual way, to displace an 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 section 7).
If you think that no tax is due, or that the figures on the claim are wrong, take the matter up with HMRC directly. At the same time, ask DMB to delay asking the court to enter judgment. In this way, you can avoid the situation 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
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 Obtain Information. This is a letter sent by the County 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 gov.uk website at https://www.gov.uk/make-court-claim-for-money/enforce-a-judgment
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 HMRC 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 HMRC’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 keep up the payments, HMRC can take further enforcement action – and it is 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.
If your circumstances change and you cannot maintain the level of payments agreed, you should 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).
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 https://taxaid.org.uk/guides/taxpayers ).
Advice on court procedures and forms is available from Citizens’ Advice Bureaux and law centres. County Court staff can also be very helpful.
More information on the HM Courts and Tribunal Service can be found at https://www.gov.uk/government/organisations/hm-courts-and-tribunals-service.
- Debt Management and Banking. The department of HMRC responsible for tax recovery.
- County Court Judgment.