PLEASE NOTE: The charity TaxAid advises only those people on low incomes whose problems cannot be resolved with HMRC.

You need time to pay

Problems paying your tax? guide

4

Seeking time to pay

If you can’t afford to pay your tax bill in one go then HMRC can offer tailored support that takes account of a person’s individual needs. Debt Management (DM) at HMRC may agree to payment by instalments.

You may be contacted by a debt collection agent as HMRC use these agencies to help with tax collection (though they work on less than 5% of HMRC debts each year).  You should check that the agency is genuine by comparing it to the list on the Gov.uk website.

These agencies have broadly the same powers as HMRC to agree time to pay of up to 12 months. But they are not tax experts, and may not understand how the debt has arisen. Any queries about the amount should be raised directly with HMRC.

Debt collection agencies are office based and can contact taxpayers by telephone, SMS text and letter. They will never carry out personal visits to your home or business ( HMRC does not use any private sector bailiffs to make personal visits in order to recover debts).The agencies are regulated by the Financial Conduct Authority and are bound by HMRC processes and guidance. If the Debt Collection Agency fails to reach an agreement with a taxpayer they will refer the case back to HMRC to consider further enforcement action. Sometimes HMRC asks Debt Collection Agencies to collect only part of a debt; this means that the amount being pursued may not be the total amount due.

Depending on your circumstances you may ask DM for:

• a time to pay arrangement

• suspension of collection action for a period

• waiver of the tax

If you live in Scotland, you may wish to consider the Debt Arrangement Scheme. Under this Statutory scheme, you can be protected from action by creditors in return for agreeing to a plan to repay your debts in full over an agreed timescale. For more details see Debt Arrangement Scheme website.

Time to pay arrangements

If you have a self assessment debt you can set up a payment plan online and pay the debt in instalments without the need to contact HMRC provided:

• The debt is £30,000 or less.

• You do not have other payment plans or debts with HMRC.

• Your tax returns are up to date and it is less than 60 days since the payment deadline.

The arrangement normally lasts for 12 months but there is no standard arrangement and no upper limit to the amount of time that a person needs to pay the debt. HMRC will look at your financial position to make sure the plan is affordable. HMRC will look at income and expenses, savings, investments  and any other assets and liabilities. They will calculate your monthly disposable income and will expect that 50% of this income is paid toward the payment plan.

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

If you feel under pressure to pay a bill which you think is incorrect, or one which includes a “determination” (an estimated bill), then you should seek advice. You may need to make a provisional agreement with HMRC to pay some of the tax bill, while the correct amount is worked out.

As HMRC statements of account normally cover only transactions since the last statement, it can be difficult to work out what you owe and why. You can ask for a full statement of account from DM to list exactly how the bill is made up. You can also check your personal tax account for the curent balance.

Agreeing a payment plan

You will need to agree a payment plan with DM. 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.

HMRC generally expect future tax payments to be paid as they arise, alongside the ongoing payment to clear the arrears.

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.

HMRC may refuse requests for a payment plan, if it appears that such requests are being made routinely, year after year.

If your request is accepted

If DM, 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 thenyou should 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 further late payment penalties.

If the instalments are paid on time then the arrangement will run until the debt is settled. The arrangements are designed to be flexible so if your financial position worsens you should contact HMRC to change the payments and lengthen the time the plan has to run.

If Debt Management rejects your proposal

DM has a duty to consider your proposal, but there is no automatic right to time to pay.

If you fail to get agreement you should still pay what you can, when you can;  unless, for example, it appears that bankruptcy might be inevitable – in which case you should seek debt advice as soon as possible.

If you fail to agree a payment plan with DM, then recovery action may be taken such as taking control of oods, court action or bankruptcy. HMRC have stated that they will only consider such action as a last resort. 

Other points on time to pay

Lump sums

DM is 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 DM to accept the rest of the tax over a longer period of time.

HMRC do not expect you to access pension funds to pay a debt though a regular pension will be taken into account as income.

Only offer what you can afford

When making a proposal, be careful not to offer more than you can afford. If you fall behind with an agreed schedule of payments, HMRC may end the agreement.

If you know in advance that you are likely to miss an instalment, contact HMRC at once and try to negotiate an extension.

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, DM may agree to grant the extra time. HMRC do not expect you sell your home to pay the debt.

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

Often your tax demand will include “payments on account”. These are due on 31 January and 31 July, and are based on the previous year’s tax bill. If you think that your tax bill this year will be lower than the previous year, you can “claim to reduce the payments on account”. This can be done on-line if you are registered for self assessment on-line, or by phone 0300 200 3310. Alternatively you may download and send in form SA303.

Suspension of collection action for a period

DM may agree to suspend payment demands for a period if you are temporarily unable to pay the tax. This might because you are unemployed or have short-term business problems or are ill.

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 and lives in rented accommodation. If you think you might be eligible for remission, you should seek further professional advice on to how to put your case to DM. See https://taxaid.org.uk/guides/taxpayers.

Freezing of interest

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

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.