Her Majesty’s Revenue and Customs (HMRC) handles debts that relate to Income Tax, National Insurance, VAT arrears and tax credit overpayments. If you owe any of these, it’s vital that you deal with them as soon as possible.

The urgency is because these are considered ‘priority debts’, meaning the consequences of not paying them are serious and include court action, bailiffs – and in some extreme cases, even imprisonment.

We’ll explain how to get in control of these arrears – and some of the situations that can occur if you don’t.

How do you get into debt with HMRC?

HMRC is a department of the UK Government whose entire function is the recovery of taxes. Their debt management and banking department handles tax payments like income tax (PAYE), VAT, and national insurance, as well as tax credit for people on low income, and self assessment for the self-employed.

Because they handle so many forms of taxation, there are several ways you might fall into debt with HMRC. If you receive a tax credit overpayment – more money than you are entitled to – HMRC will make an arrangement to collect that debt. Similarly, if you find yourself short when it’s time to pay your income tax, it’s HMRC who will deal with the recovery.

Debts to HMRC are considered priority debts, meaning their debt management department have recovery powers that other creditors don’t. If you owe money to the revenue service, it’s important you come to an arrangement with them as soon as possible, or you may face serious consequences – up to and including enforcement action.

How do I get rid of HMRC debt?

Getting back into control of your HMRC debts doesn’t have to be hard – even if it feels like a bit of an intimidating task.

It’s easy to assume large government organisations like the HMRC are always right with their calculations – but it’s not always the case – so it’s best to double check and be certain that what you owe is correct.

Ask yourself:

• Have you provided them with up to take figures for your business takings?
• Have you made sure all your business expenses are in order?
• Do they have all your information correct on the correspondence they’ve sent?

If any of this information isn’t exactly right, it can lead to miscalculations and sometimes over-estimations of what you should pay.

If you’re self-employed or run your own business and you’re not certain, talking to your accountant can be a big help. It’s also possible to appoint an alternative tax agent – someone who will deal with HMRC on your behalf, handle your self-assessment, and deal with any other tax affairs that require attention.

Steps to you can take to get on top of HMRC debt

Whenever you arrive at an accurate tax debt figure, there are several steps you can take to help regain control of your debt. Your recovery starts with putting together a budget that will help you manage your debt.

Calculate your income

To start with you should calculate how much you take personally from the business each month. If you do this formally with a set figure each month this will be simple – if on the other hand, you take a different amount month-to-month, work out an average amount based on the previous 3/6 months. This figure is your income.

Calculate your essential outgoings

There are payments you make each month that mean you keep food on the table and a roof over your head – these are your essential outgoings. Add up costs that relate to mortgage or rent, essential transport costs, utilities bills, essential food and clothing costs – and so on.

As well as these costs, you’re likely to have costs that you’re contractually obliged to pay – for example, contract mobile phone costs, finance and credit card payments – and similar. Even if these aren’t vital, you’re obliged to pay them, so add them to your outgoings.

Calculate any disposable income

When you have these figures, take the essential outgoings figure from your income figure and you’re left with a disposable income amount.

This might look like a lot – it might look like very little, but it’s important that it’s accurate as it’s going to form the basis of what you can afford to pay the HMRC to settle your debt.

Don’t worry – it’s unlikely they’ll expect you to pay all of this amount, they understand that savings and being able to live a normal life is important, but as this is a priority debt and will need to be cleared as quickly as possible.

Talking to HMRC about debt

When you have a figure that you can afford to pay each month, you should speak to HMRC to discuss setting up a regular payment plan.

To speak to HMRC you can call 0300 200 3300. Don’t worry if you work long hours – during the week their lines are open between 8am and 8pm – and between 8am and 4pm on Saturdays.

HMRC work on a year-to-year basis – and to avoid rolling your debt into next year, they’ll try to set up a repayment plan that has it cleared this financial year.

This can sometimes lead to them requesting a payment that you simply cannot afford – while it’s important to work on repaying them, you also need to make sure you don’t get into financial difficultly elsewhere – so pay what you can afford – and offer to show them your budget if they require proof.

Even if HMRC request a larger amount that you can make now, make a payment if you can, it’s better to be paying something that there be any misunderstanding that leads them to think you’re not going to pay owed tax.

Stay in touch with HMRC

One of the worst things you can do when you owe money is to stop talking to your creditors, and the same applies with HMRC. You need to make sure you’re giving them regular updates on your tax situation.

If you’re struggling to make payments, you may be able to speak to them and offer an explanation before it’s time to pay. If you’re in a position to make an overpayment, do so – it can help buy some breathing space if you have a tighter month further down the line.

The recovery process (and any punishment associated) will go ahead, even if you don’t stay in touch, so it’s better to be informed.

Can you pay HMRC debt in installments?

While HMRC has strict rules regarding the repayment of taxes, they will offer a certain amount of leeway as long as you signal your intention to pay what you can, when .

You will be given extra time to pay so long as you can provide them with information to show you can’t pay right away or in full. In that scenario, it is possible to come to an arrangement to pay in installments, by setting up direct debit payments that they agree to.

HMRC will continue to expect updates and if your situation changes, you should pay them faster. Any late payment of installments will come with added interest and charges.

What happens if you don’t pay HMRC debt?

When you owe money to HMRC they might not chase it in the way you would expect a company to do so. A credit card, loan or utilities company will call numerous times and send reminders, before passing your debt on to a collection agency – whereas HMRC will follow a formal process that escalates quickly.

What action can HMRC take against you?

Apply to the courts for a County Court Judgement (CCJ)

Legally outlining a repayment plan and significantly impacting your ability to get credit in the future. Failure to pay a CCJ can lead to more serious consequences, as well as putting your home and business properties at risk if a ‘charging order’ is then applied for.

Issue a magistrates’ court summons

Which you will be required to attend with details of your business and personal finances. A payment plan will be decided – which must be kept to. Failure to stick to a court decided payment plan can lead to further court appearances – and even prison if it’s decided you have the money but haven’t made payment.

Start bankruptcy proceedings

If your debts total more than £5,000, bankruptcy can be sought by HMRC which will lead to assets you own (including your home) being sold to settle your debts. You will not be able to hold a directorship during your bankruptcy and your credit rating will be severely impacted, almost certainly leading to consequences for your business.

Seize money you have saved

In some instances, HMRC will take money directly from your bank or building society account. They do not need your consent to do this, although they must leave you with more than £5,000 remaining in savings when the debt is settled.

What collection agency does HMRC use?

HMRC may use a private debt collection agency to reclaim money owed on tax arrears, tax credit, or any other payments you may owe to HM Revenue & Customs.

If you have tax debts, you may face enforcement action from any of the following debt collection agencies:

• 1st Locate (trading as LCS)
• Advantis Credit Ltd
• Bluestone Consumer Finance Limited (trading as Bluestone Credit Management)
• BPO Collections Ltd
• CCS Collect (also known as Commercial Collection Services Ltd)
• Moorcroft
• Oriel Collections Limited
• Past Due Credit Solutions (PDCS)

Who can support you with HMRC debt?

If you need some support with HMRC debt management, there are a number of UK charities who can help:

Business Debtline – Offers support to self-employed people across the UK. Can offer advice on self assessment, HMRC debt management, or general debt management issues.

Citzens Advice – Helps individuals with personal and business issues – with specialist debt advisers who can offer free advice on debt consolidation and help with tax credit queries.

TaxAid – A resource for people on low incomes who have problems with tax or regulations that cannot be resolved by HMRC.

If you’re in serious trouble with debt management, however, it may be worth talking to an insolvency practitioner. They will be able to take a look at your tax account, create a tax payment plan for you, and help you stick to your arrangement with creditors.

Can HMRC debt be written off?

In the first instance, you should always try to pay off any arrears to HMRC yourself. As mentioned previously, the debt management department are usually pretty happy to have a conversation about any money owed, will take your financial circumstances into account, and might be able to come to an agreement with you about how you can pay back what you owe.

If you’re really struggling with debt, however – to the point where a conversation with HMRC or a debt management officer won’t help you – it is possible to write off your debt with a formal debt management solution.

These solutions come in various forms, from an IVA to a Debt Relief Order. They allow you to come to an agreement with your creditors to pay a single monthly payment towards all your debts over an agreed period of time. Once you reach the end of your agreement, any debt you have been unable to pay will be written off.

HMRC debts can be included within formal debt management solutions, meaning it’s possible you could write off any HMRC debt you can’t afford, but you would have to check with the insolvency practitioner or agreement provider to be sure.

Act now on priority HMRC debt

When it comes to tax debts, it can be tempting to wait around and hope for a recovery. Maybe your finance situation will change and you’ll bounce back when it next comes time to pay? But with creditors like HMRC, that’s the wrong approach to take.

The HMRC Debt Management and Banking department treat every case of tax debt seriously. You have options, but only if you take action. If you can, speak to HMRC today, make arrangements to pay what you can afford, and make sure you provide them with regular updates. If that’s not possible, you may need to look into a debt management plan.

IVA Plan can help. We specialise in debt management, and can offer you solutions that keep your creditors at bay, from information and advice on debt consolidation, to setting you up with a formal solution like an Individual Voluntary Arrangement (IVA) or Debt Relief Order.

IVA Plan treats every case as unique, and will help you find a repayment process that works for you. Don’t take a risk with your financial future, take action – with a single phone call.