Advisers’ Decision Tax Debt Tree
Is there a debt due to HMRC?
Some tax debts are hidden. Watch out for:
- Employees with multiple jobs and incorrect tax codes
- Retired people who work and also claim state pension – on a standard tax code they will underpay tax
- Property sales – on which Capital Gains Tax may be due. Eg Buy to let properties
- Currently self-employed – but not registered with HMRC
- Previously self-employed – with un-submitted tax returns
- On taxable benefits and in therapeutic work, or with taxable investment income
- Undeclared income; especially if facing bankruptcy – make sure such income is declared to HMRC before bankruptcy
- Construction Industry subcontractors – who have paid tax at source, but have not submitted tax returns
Do you agree that you owe this amount?
- Do you think the debt is right?
- Have you an accountant who has agreed the figures?
- Have all tax returns been submitted?
The answer ‘yes’ to these questions suggests the tax bill is correct. ‘No’ suggests that the tax bill may be estimated.
- Have you worked in the construction industry? (Some tax may have been paid at source)
- Are you or have you ever been self-employed? ( The position may be complex)
- Does the tax bill follow from a tax enquiry? (Tax bills following tax enquiries can be high. There may be little that can be done if the taxpayer has signed an agreement to pay the tax)
Is it urgent?
- Can you afford to pay anything now?
- Are you likely to have funds in soon?
- Are you past retirement age (specify age)?
- Are you currently unemployed or on benefits?
- Have you been adversely affected by changes in the national economy?
Are client’s circumstances exceptional through ill-health, poverty; old age; external business disasters? If the client has no assets, Remission (putting the debt ‘on ice’) may be an option, otherwise suspension of collection for a period, may appropriate.
Is client vulnerable and at risk due to health / mental health issues, domestic or other violence? Fast track treatment – via TaxAid’s Adviser line may be appropriate.
Details about the debt
- How much is HMRC debt / demand?
- Has HMRC already taken / started legal action?
- How long has this been going on?
What sort of debt?
This affects the recovery period, urgency and likely enforcement route.
- Self-employed – Income tax and class 4 National Insurance
- Self-employed – Class 2 National Insurance
- Interest, late filing penalties, and late payment penalties
- Value Added Tax
- PAYE as employer
- PAYE as employee
- Corporation tax / Capital Gains Tax
- Tax Credit Overpayments
See More Info box and Time to Pay section for details
Which tax office is involved?
If Enforcement and Insolvency Service Office is involved (Worthing for England and Wales, Edinburgh for Scotland and Northern Ireland), urgent action is needed.
See the More Info box for details
Is the caller seriously insolvent?
so that the taxpayer needs advice on debtor’s bankruptcy or Individual Voluntary Arrangements
Is the caller an urgent case?
Legal action already taken by HMRC, or is imminent
Is the caller a possible remission case?
Caller is old or is in poor health, unlikely to work again and has no assets; lives in rented accommodation.
It is worth explaining in detail the specific circumstances of the taxpayer at the time the request is made for remission, even if this information has already been supplied to HMRC previously.
Requests may be best made in writing – expecting a written reply – as this gives a fuller opportunity to consider the request and the response: it also makes it easier to assess if HMRC’s refusal is reasonable.
Is the caller a suspension case?
Caller hopes to have a job or funds so as to offer instalments soon.
Suspension of collection may be available for 3 to 6 months where there is:
- Unexpected serious ill-health – eg stroke or cancer
- Unexpected external business difficulties such as the collapse of a major supplier or customer
- Short term cash flow problems – eg imminent sale of assets
- Temporary unemployment
Does the client agree to suspension?
Adviser should explain suspension and how it is obtained.
It is worth explaining in detail the specific circumstances of the taxpayer at the time the request for suspension is made, even if this information has already been supplied to HMRC previously.
Does the client agree?
Can the caller offer payments within HMRC’s Time To Pay (TTP) parameters?
HMRC’s maximum timescale for repayment of self-assessment debts is 12 months. Payments in this period must cover all arrears – including penalties and surcharges, the ongoing liability, and interest ( at 3% – for previous rates see HMRC website at http://www.hmrc.gov.uk/rates/interest-late-pay.htm).
VAT and PAYE are usually recovered on a shorter timescale (within 12 months maximum – but in practice usually a matter of months).
HMRC normally require a minimum offer of at least 25% of free income as shown by income and expenditure figures.
Business Payment Support Service is aimed as a first point of contact for helping taxpayers who expect to be unable to meet forthcoming liabilities in full by the due date. Time to pay of up to 12 months can be arranged. The contact number is 0300 200 3835 (8.00 -8.00 Mon to Friday, and 8.00 to 4.00 Sat and Sun).
Note: The Business Payment Support Service is for NEW enquiries only about time to pay for tax debts. It is for any sort of tax (VAT, PAYE, NI, Income Tax and CT). Time to pay will still be considered on a ‘case by case’ basis. HMRC has said that the BPS “is meant to help with the difficult time at the moment.” Maximum timescale – about 12 months; longer timescales (exceptional circumstances only) are referred to local Debt Management Office.
Is the caller’s case at the Enforcement and Insolvency Office?
Enforcement and Insolvency is the last stage of recovery. The timeframe is likely to be very short and urgent action is needed. Contacting TaxAid direct on the adviser’s line will be needed – rather than signposting client to TaxAid’s public helpline.
Is the client solvent and able to make a significant offer of repayment?
Local recovery / DMB
Are distraint, Court proceedings or Direct Recovery of Debt imminent?
Answer: VCS Adviser’s line
0300 330 5477
The VCS line is for use by not-for-profit advisers. It should not be given to the public. Options are:
- Phone to discuss a particular client’s affairs with a tax adviser
- Ask TaxAid to phone a vulnerable client direct
- Transfer a client direct to a TaxAid adviser (vulnerable clients)
The line is open Mon – Fri 10am-12 noon and 2-4pm.
Answer: Public Helpline
0345 120 3779
The service is designed for people who cannot afford to pay for professional help. There is an individual annual income limit of about £20,000 for face to face appointments and general tax advice; but tax debt and undisclosed income cases are considered on the phone even when income exceeds this limit.
Opening hours 10am – 12 noon Monday to Friday
Answer: Advice and DM
Adviser should offer appropriate money advice and HMRC Debt Management and Banking should be informed.
Care should be taken to ensure that all tax returns are submitted prior to bankruptcy. In particular any undeclared income should be disclosed to HM Revenue and Customs. Please phone the TaxAid VCS line if needed to discuss the position – 0300 330 5477, Monday to Friday 10am-12 noon and 2-4pm.
More information on tax and bankruptcy can be found in the tax debt bankruptcy section
Answer: Refer to DM
If client agrees, signpost caller to DMB currently dealing with case to request suspension.
Or if problems, refer to Answer 3, Public Helpline
Answer: Local Recovery / DM
- Explain powers of HMRC Debt Management and Banking
- Allay common fears, eg. jail
- Explain benefits of proactive contact
- Offer help in framing Time To Pay proposal
If written guidance is wanted, adviser should offer paper or web link:
- HMRC helpsheet(s) – Taking control of goods (distraint) / Court Action
- Tax debt videos
- Link to section on Gov.uk website:
At appropriate points, signpost to local recovery / DM.
If there are problems or the offer is rejected, refer the caller to the Adviser’s Line.
Answer: Accounts office
- Explain that action is not imminent
- But should act quickly to offer TTP
- Explain role of Payments H/L
- Offer help in framing TTP proposal
If written guidance wanted, adviser should offer web link:
- TaxAid debt guide
- Link to section on HMRC website
- Other guidance
At appropriate point(s) signpost to the HMRC Payments Helpline 0300 200 3401, or BPSS 0300 200 3835
If there are problems or the offer is rejected, refer the caller to the Public Helpline.
Question 1: Is there a debt due to HMRC?
Hidden tax bills
- Part-time workers may have incorrect tax codes. They can be underpaying or overpaying tax. Have they checked their tax codes?
- State pension is taxable but not taxed at source. Tax due on the state pension is usually recovered by taxing other income. Errors are common, especially where there is part-time work and pensions
- Selling property could be a route out of debt, but is likely to result in a Capital Gains Tax bill. For 2016-17, this is roughly 10% /20% for higher rate taxpayers (2015-16 – 18% basic rate taxpayers /28% for higher rate taxpayers) of the difference between sale and original purchase price – less an annual exemption which exempts the first £11,100 of the gain (2016/17 rate)
- Many state benefits are taxable eg State Retirement Pension; Carer’s Allowance; Jobseeker’s Allowance; Contributions based ESA; add some therapeutic work, or a pension, and the result can be a hidden tax liability; for list of taxable benefits see http://www.hmrc.gov.uk/manuals/eimanual/EIM76101.htm
- Undeclared income can mean a hidden tax debt. See ‘If you have not declared your income’ for details: https://taxaid.org.uk/guides/taxpayers/undeclared-income
- CIS subcontractors usually have income tax deducted from their income, but if they do not file tax returns as self-employed people HMRC may estimate a tax bill for them. The estimated bill makes no allowance for the tax deducted at source
- HMRC can create new debts – even going back 20 years in cases of ‘deliberate error’; existing crown debts do not go out of time
Why clients may be at risk
- Tax debts (except for National Insurance) are not statute barred after 6 years (5 years in Scotland)
- Estimated debt can be enforced, even to bankruptcy
- Bankruptcy is likely even when there are no assets
- Home visits are likely even before court involvement
- In England and Wales, HMRC has a right to legally take possession of goods without needing a court order (peaceable entry)
Question 2: Do you agree that you owe this amount?
In the absence of completed tax returns from the tax payer, HMRC can estimate the taxable income and tax due. This is called a determination. Tax due under a determination is legally enforceable and can only be displaced by the client submitting tax returns – and there are time limits for doing this.
Question 4: About you
HMRC may agree to suspend collection where there has been a sudden unexpected turn of events such as an unexpected illness or bereavement or the collapse of a major customer or supplier.
In exceptional cases, where the client is elderly, in ill-health, on low-income and has negligible assets, HMRC may agree to remit a debt. This means that it is taken off the system, but could be brought back to life if client’s circumstances change.
Victims / health and mental health issues
People who have been subject to domestic or other violence, have significant physical or mental health challenges, or who are otherwise at risk, need special treatment. Unless contact has been made with HM Revenue and Customs and explanations given, such client’s may be treated by the system as deliberate non-payers.
Question 5: Details about the debt
Which HMRC office is involved?
There are layers of offices within Debt Management and Banking – each with different levels of authority. What level has the client reached?
- Accounts office (Time to Pay)
- Recovery Office (Taking Control of Goods, Court Action, Time to Pay, Direct Recovery of Debt)
- Enforcement and Insolvency Service office (Bankruptcy, last minute offers and arrangements, IVA and Protected Trust Deeds(Scotland))
Late Filing Penalties
Late filing penalties can reach £1,600 or more over 12 months. These apply even when no tax is due. For years up to and including 2009/10 late filing penalties (other than separately imposed daily penalties) were £200 a year and could not exceed the tax owing for the year (and unpaid by the filing deadline of 31 January)
3 and 4 Year deadlines
3 years after the filing date of 31 January, estimated tax bills (‘determinations’) cannot be amended. The only exception to this is if the determination is made late, in which case the taxpayer has 12 months from the date the determination is made.
There is real danger of client’s being left with a tax debt based on estimated figures if they delay in sending in a tax return. The only solution when the estimated demand has become fixed is Special Relief. This is a solution available from HMRC Debt Management and Banking via the Enforcement and Insolvency Office.
HMRC may agree to give up its legal right to a debt which has been estimated, but there are very strict conditions.
The risk for many clients who are self-employed is that HMRC may not accept that they have good enough records to prove their income figures, and insufficient reason, in HMRC’s view, for failing to submit a return on time – so the estimated debt will stand.
If the tax bill is not a determination then the taxpayer has 4 years from the end of the tax year in which to submit a tax return.
For information on Special Relief, see the end of the page on Bankruptcy https://taxaid.org.uk/guides/taxpayers/tax-debt/bankruptcy
Imminent recovery action or court action
Eg Taking control of goods; Court papers; Bankruptcy Action; Direct Recovery of Debt;
One a tax enquiry is settled by a contract settlement there is little that can be done to reduce the amount due. For a very recent enquiry there may still be a chance. For more on Enquiries see https://taxaid.org.uk/guides/taxpayers/tax-returns/enquiriess
Question 6: Is the caller seriously insolvent?
If client faces bankruptcy or an IVA, ensure that all tax returns are up to date so that tax debts can be included. This is particularly important if client has undeclared income which could otherwise be considered tax evasion and subject to criminal proceedings.
Timing of bankruptcy is important for tax credits as only finalised (post renewal) tax credit overpayments will count as bankruptcy debts. Watch out for joint claims as there is joint and several liability.
Question 7: Is the caller an urgent case?
Information on Court action can be found in the tax debt section of the website
Question 8: Is the caller a possible remission case?
Remission is not widely advertised as an option. It can be appropriate where the only alternative would be bankruptcy and there are no significant assets.
Where the taxpayer owns a property and is elderly, HMRC might consider a charge on the property as an alternative to bankruptcy
Question 11: Can the caller offer payments within HMRC’s Time To Pay (TTP) parameters?
Time to pay information
All outstanding tax returns need to be submitted before time to pay is agreed. (In practice HMRC may provisionally agree time to pay and allow, say, 30 days for the returns to be filed)
Penalties for late payment
Late payment penalties can add to the bill – agreeing Time To Pay should avoid additional charges – see http://https://taxaid.org.uk/guides/taxpayers/tax-returns/late-filing-penalties-and-appeals
Payments on account
These are due 31 January and 31 July. They are set at half the previous year’s liability. Where profits are falling they may be too high and can be reduced on-line, by phone or by using form SA303
More detailed information see https://taxaid.org.uk/guides/taxpayers/tax-debt/wrong
Failing to keep to an agreement
It is important not to be overcommitted. HMRC is likely to take recovery action through the court if an instalment is missed. Future payments would then be under a court judgment.
Reasons why HMRC may not agree time to pay:
- Out standing tax returns;
- proposal doesn’t cover ongoing liability as well as arrears;
- previous history of non-compliance or late payment;