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Table of Contents
What Is HMRC Debt?
HMRC arrears is any debt amount that relates to Income Tax, National Insurance, VAT or Tax Credit Overpayments.
These are ‘High-Priority’ debts and since the consequences can be severe, should be dealt with as soon as possible.
How Do You Get into Arrears To HMRC?
There are several ways you can fall into debt to HMRC:
Overpayment of Tax Credits
Occasionally HMRC will overpay you your Tax Credit and when this happens, they will expect their overpayment to be returned. Problems can occur if you have spent the money they overpaid you.
Income Tax Debt
For many of us, income tax is something that we have almost no involvement in. We receive our monthly wages, and it has already been taken before it hits our accounts. But if you are self-employed, then the management of your income tax payments fall on your shoulders. When it becomes time to pay the tax bill, if you have not kept money aside, then things can get tough.
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How Do I Get Out of HMRC Debt?
First of all, it is always worth double checking that you agree with the calculations that HMRC have made. Just because they are a government agency doesn’t mean they always get things right! Check your figures and make sure you have provided them with ones that are up to date. Are all your business expenses in order? Does HMRC have them? It’s also worth checking they are dealing with the correct company; is the information on the correspondence correct? You would be surprised at how many errors occur.
If you have doubts, check with your accountant, or hire a tax agent to speak to HMRC on your behalf.
What If the Tax Debt Is Real?
If the debt is genuine then it is essential that you contact HMRC to discuss your options. Their number is 0300 200 3300 and they are open from 8am-8pm on weekdays and 8am-4pm on Saturdays.
Before you speak to them it can be a good idea to carry out a simple budget.
Income – Essential outgoings = disposable income.
If you are self-employed, then you may give yourself the same amount of money every month, however if you take a different amount every month, then calculating an average over the last 3-6 months will give you your average income.
Any bill relating to basic living will be considered as an essential outgoing, these can include:
Essential transport costs
There will also be costs that you are contractually obliged to pay such as:
Once you have subtracted your essential outgoings from your income, what is left is your disposable income. This is the money that you would normally be able to spend without risk of getting into difficulties with bills.
When discussing the repayment of your HMRC debt, this is the figure that they will use to decide what you can afford. It is important not to set yourself up to fail here, be conservative and make sure you give them a figure that is accurate. But don’t worry, HMRC won’t take all of it, they know that you need to be able to live a normal life. They will try and strike a balance between paying the debt as quickly as possible (normally within the financial year) and leaving you with enough to live.
If HMRC demand a payment that is beyond what you can afford, show them your budget and the reason why you cannot afford it. They will want to clear that debt within the current financial year, but if you can’t, make sure you are paying them something. This at least shows them that you are willing to pay your arrears.
Paying by Instalments
If you can prove to HMRC that you cannot pay your debt in full, even within an extended timeframe, then you may be able to set up a payment plan with them. It is important to note, that if your financial situation improves, then they will expect you to pay more quickly.
What Action Can HMRC Take Against Me?
As mentioned earlier, communication is key when it comes to HMRC debt. If you fall into arrears with them, then a formal process begins, whether you know about it or not. By speaking with them, you can at least be kept up date. The stages are as follows:
Court Application for A CCJ (County Court Judgement)
A CCJ is a formal, legally binding repayment plan for your debt, and it is not to be taken lightly. Receiving a CCJ can have significant consequences when attempting to access credit in the future. Any process that includes a credit check may run into problems.
Any failure to pay your CCJ could result in a ‘Charging Order’ which could mean the repossessing of your home or business premises.
Magistrate Court Summons
You will be expected to attend the court hearing with your personal and business financial information. During the hearing, a decision will be made for you as to what your repayments should be. If you fail to pay these charges, then you will be asked to return to court to explain why. If it is discovered that you had money to make your repayments, you could even be sent to prison.
If your debts are greater than £5000, the court may seek to file a bankruptcy proceeding against you. If this happen, then your assets can be seized, including your home and any money in your bank account and they will be sold or sued to cover the debt. Your credit rating will be severely compromised, you won’t be able to hold the position of Director in any business.
How Can I Get HMRC Debt Help?
If the only debt you have is with HMRC, then it is worth speaking to them and sorting the issue directly.
However, if your HMRC arrears are only one of a few debts you have, then dealing with them could alleviate your burden and get you on track to pay HMRC more quickly. Your tax debt could even be included in a debt management Plan.
If you are having trouble repaying your HMRC debt or if you have other unsecured debts that are beginning to get out of control, then the following solutions may be right for you:
If you live in England, Wales Or Northern Ireland:
If you live in Scotland then the following solutions will be available to you:
Contact IVA4Me for help with your tax debt. We can help you begin to get your life back on track.