Tax & Admin

What are your options when you have difficulties paying HMRC?

Allison S Robinson | 22 October 2021 | 3 years ago

Difficulties paying HMRC

If you have any outstanding tax bills with HMRC, but know that you will have difficulties paying any or all of the amount that is owed, you must contact HMRC to discuss the options available to you as soon as possible. The longer you wait, the more you will owe because interest is charged on any overdue payments until they are paid off.

Read on to understand the options that UK taxpayers have available to them if experiencing difficulties paying HMRC.

What tax payers need to know

When contacting HMRC to discuss paying your tax bill, if you let them know you are, or will struggle to pay the amount owed, they will be able to share the options available to you.

Payment options will depend on your specific circumstances and the amount owed, but will usually include; paying your bill in installments with a payment plan or deferring payments.

You can avoid penalties or interest payments by being open and honest with HMRC as soon as you know that you will have a problem paying your bill. By taking a proactive approach to contacting HMRC, they can put a payment plan in place before the tax is due, or by 1st April for self assessment, thus removing the need to pay interest on any late payments. .

If you miss a planned payment or are not able to pay the full amount of your tax bill, this requires your immediate action and you should contact HMRC at the earliest opportunity.

Paying your taxes

It can sometimes feel that everybody wants a piece of your hard earned cash. With the price of energy, fuel and food going up year and year, it’s hard to know where to start when it comes to budgeting. One expense that you can’t afford to neglect however is any bills owed to Her Majesty’s Revenue And Customers, more commonly referred to as HMRC.

Read on for more details on the options available to you if you know that you will struggle to pay all or some of your tax bill by the time it is due. 

When do you have to pay HMRC?

Difficulties paying HMRC

The tax that you need to pay HMRC will be specific to each individual and are based on the type of employment, investments, assets, companies, benefits, taxes, duties and levies that you use in your personal and professional life, to name just a few.

To calculate how much tax you owe HMRC, you are required to fill in a self assessment tax return form for every tax year by 31 January after the end of the tax year. This can be done online and the form you fill in outlines all of your earnings from self employment, interest, investments and other sources that aren’t taxed at source like income from an employer would be.

By the end of the form, you will see HMRCs calculation of the amount of tax you owe and when this will be due for payment.

The deadlines for HMRC to receive your funds to settle the tax you owe are:

  • 31 January – for any tax you owe for the previous tax year and your first payment on account
  • 31 July for your second payment on account

How can I pay HMRC?

HMRC wants to make it as easy as possible to get paid which is why taxpayers have multiple ways to make sure their payments are made in good time.

Whatever amount of tax you owe, you can pay HMRC by:

  • Direct debit
  • Debit or corporate credit card
  • Certificate of tax deposit

Spreading the cost of your bills to HMRC

Difficulties paying HMRC

If you cannot afford the tax bill you have received, or if you know you will likely struggle to pay your bill when it arrives, there are a number of ways that you can spread the total cover over a number of smaller installments, if certain criteria apply.

Payment plans – time to pay 

If you owe less than £30,000, have no other debts with HMRC, your previous tax returns are up-to-date and you’ve made contact less than 60 days after the payment deadline then you may be able to set up a payment plan that allows you to spread the cost of your self assessment bill by paying what you own in smaller, more management installments. Be aware however, that interest payments will still apply on top of the original amount owed if the payment is made after the tax deadline.

A payment plan usually lasts for around 12 months but there is no upper limit to the timeframe that debt can be settled. When implementing a payment plan, HMRC will assess your financial position to ensure that any agreement is affordable to you.

By reviewing your income, expenses and savings, they will expect that 50% of any remaining disposable income is put towards the tax bill owed.

Time to pay

If you have received a payment demand from HMRC outlining the action they will be taking against you to recover the tax owed, you should call the number on the letter. If you have not received a bill or letter yet but want to proactively approach HMRC regarding additional time to pay your taxes, then you should call the payment support service (PSS) on 0300 200 3835. The team may be able to negotiate a Time to Pay arrangement with HMRC on your behalf.

Planning ahead with advance budge payment plans

If you like to stick to a budget, be proactive, and plan ahead to prevent the shock of a big bill, then you may prefer to put money aside each month to help cover your next self assessment tax bill.

If you are up-to-date with your previous tax returns, you can set up an advance payment plan via your HMRC online account. If when your bill is ready, you don’t have enough cash saved to cover the bill in full, you will still need to pay the outstanding balance by the usual payment deadlines.

Taking this approach may be suitable for some people and could prevent getting into difficulties paying HMRC.

What happens if I ignore the bill?

Ignoring bills is never a good way to get on top of your debts as sadly they will never just go away. The best way to tackle difficult financial situations is to take a deep breath and contact the company or office that has issued your latest bill.

If you fail to make arrangements to pay any tax owed, then HMRC is able to and will take ‘enforcement action’ to recover the costs due to them.

Enforcement actions available to HMRC include direct recovery, distraint and Court action.

  • Taking money directly
If you have repeatedly refused to pay the tax you owe, have had a face to face visit with an advisor from HMRC, and would have at least £5000 left if your account after the debt is recovered, then HMRC can take the funds owed directly from your bank or building society account.

This process is called ‘Direct recovery of debts’ but HMRC will never take this approach without informing you of their intention first. You will always be contacted by letter outlining the process and how to make contact with them before any funds are taken.

  • Taking control of your goods – distraint 
If you have failed to pay the tax you owe, HMRC has the option to take control of the things you own and sell them in order to pay off the amount you owe them. If taking this option, you will also be charged additional fees on top of the existing bill to cover the enforcement of this action to recover the debt.

If you do not pay your bill when visited by HMRC and asked to pay, then the officer will make a list of suitable possessions that could be sold to cover the debt owed and the cost of selling them. The sale of your possessions can take place within 7 days of the visit if you do not subsequently settle your bill.

If the amount raised by the sale of your goods is more than the amount owed to HMRC then you will be sent the difference. If there is a negative difference, then you will be required to make up the shortfall.

View full table of fees due when this type of enforcement takes place.

  • Court action 
HMRC can take you to Court if you do not settle your tax bill and if this occurs you will be liable to pay both your own costs, HMRC’s legal costs, on top of the tax you already owed.

Going to Court is rarely a pleasant experience but is one that could be avoided with prompt payment of your tax bill or contacting HMRC to explain you are facing difficulties in making payment.

If you have separate debts of £2000 or less and you’ve owed HMRC for under a year then you could receive a summons advising you of your Court hearing. You can avoid going to Court by paying the amount owed.

If you choose not to settle your bill, then HMRC can ask the Court to recover the debts owed via bailiffs, taking directly from your earnings, making you bankrupt, ordering your debtors to pay off the debt or place a charge on any property you own.

  • Bankruptcy proceedings 
The final option HMRC can take against you if you do not settle your tax bill is to present a bankruptcy petition to the Court who can then declare you bankrupt. Being made bankrupt is a serious outcome of unpaid tax bills and means you will give up your assets – but it doesn’t have to come to this. You can avoid being declared bankrupt by making contact with HMRC and finding ways to settle the bills you owe.

Where can I get advice about tax bills?

Aside from calling HMRC itself, if you’re struggling to pay a tax bill, then it can understandably be a daunting and worrying time. The good news is, there is always help available to those who need it and you can get FREE support from a number of organisations that will be able to highlight the options available, talk through your concerns and help you to put a positive plan in place.

Related questions

Can HMRC refuse a payment plan?

Yes, HMRC can refuse to offer a payment plan. Usually the reasons for a refusal will be because tax bills have been late or missed repeatedly with no effort to contact HMRC

Coronavirus has made tax payment hard

The Coronavirus pandemic caused widespread disruption to businesses, individuals and earnings all over the country. If you or your business has been negatively affected then the government introduced a range of measures to support you.

Part of this includes an extension of the existing HMRC Time to Pay scheme which will ensure that more companies have the breathing space they need to pay their tax bills. This should allow you to take stock, and adjust from the unexpected and changing financial circumstances experienced due to the pandemic.

Summary

When it comes to paying tax, the advice is clear. Contact HMRC as soon as you are aware that you will have difficulties paying your tax bill. You are much more likely to receive a sympathetic response if you make contact proactively or have exceptional unforeseen circumstances that mean you can’t pay your tax bill such as illness or loss of a major client.

Early action can prevent unnecessary costs building up in interest payments and will ensure that you have access to all of the help available to you including time to pay plans and deferred payments.

Failure to take proactive action may result in HMRC using its debt recovery enforcement powers to recover the amount owed.

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