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Here we explain the main points that you may need to consider first if you cannot pay your tax.
Note on terms used.
In this website, we refer to the people who pursue you for unpaid tax as Debt Management and Banking.
HM Revenue and Customs Debt Management and Banking
Debt Management and Banking was created within HM Revenue and Customs on the merger of the Revenue and HM Customs and Excise in April 2005. It is the tax collection service of HM Revenue and Customs. It comprises local Debt Management Offices, Accounts Offices, Debt Management Telephone Centre, and Enforcement Offices in England, Wales, Scotland and Northern Ireland.
Most initial requests for payment are sent from the two 'Accounts Offices' in Cumbernauld and Shipley.
If matters need to be pursued locally e.g. for enforcement action where payment has not been made, this is dealt with by a local Debt Management office. This is normally named after the city/town in which it is located and which has responsibility for the address at which you live/trade. Cases involving bankruptcy are handled by the Enforcement and Insolvency Service (EIS). EIS is based in Worthing, with sections in Belfast and Edinburgh.
People within Debt Management and Banking do not deal directly with your personal tax return, although they may contact you if your tax returns are outstanding.
The issue and processing of tax returns is dealt with by 'Service' offices which we will refer to as your 'tax office'. It is the Service office which works out how much tax you owe and processes your return. Debt Management and Banking deals with collection of the tax due and helps taxpayers to fulfil their legal obligations to send in tax returns and pay tax on time.
If you have a problem with payment you must recognise these different roles within HM Revenue and Customs. Debt Management and Banking deals with collection of tax due, not the underlying figures of income which form the basis for the tax bill. If you can't pay your tax, the first office to contact is usually the local Debt Management and Banking office. You may need to contact your tax office as well - if you think the amount of tax is wrong. (See the section If you think the tax bill is wrong for more details about this)
Introduction
Many thousands of people get into arrears with their tax every year. You may first become aware of such a problem when a debt appears on your Statement of Account. For more information see the FAQ 'statements of account'.
After a short time has passed, you will be contacted by Debt Management and Banking, - usually by telephone. Debt Management and Banking will want you to make immediate payment.
Do not panic
Debt Management and Banking may threaten you with legal action, which can feel very frightening. However, it is important not to panic, as things may not be as bad as they seem. Try to stay calm and consider the following points.
Do not ignore a statement of account or a demand from Debt Management and Banking
The worst thing is to ignore the matter. If anything can be done to help your situation, it is usually best to act quickly. If you do nothing at all, you increase the risk of legal action against you. If daily penalties are threatened you need to take immediate action. If imposed, these penalties remain payable even if no tax is owing. They can be very expensive - up to £60 per day per outstanding tax return.
The amount demanded may be wrong
In many cases, you may not agree with the amount of tax shown on a Statement of Account, or demanded by Debt Management and Banking. For example, the statement might be based on an estimate of your income, because you have not sent in your tax return. This estimate is called a "determination". It is usually possible to get it corrected within certain time limits.
However, by law, the tax is due and payable - even if it is based on estimated or incorrect figures. There is little point in trying to raise such issues with Debt Management and Banking, when they are chasing you for unpaid tax. It will usually be necessary to contact the tax office which deals with your tax return to get the necessary adjustments made.
If you have not completed your tax return(s) you will be liable for any penalties, surcharges, interest and tax charged under a 'determination'. These are treated as being wholly correct and are enforceable until such time as the completed tax return is submitted, and the tax bills are revised.
Once the tax return has been submitted, the amount of tax is revised to the amounts indicated by the return and you will only then be asked for this revised debt plus interest and any penalties and/or surcharges which remain due in respect of the revised debt.
Debt Management and Banking is concerned not just with payment of outstanding tax, but also with bringing the taxpayer's affairs completely up to date. If you have not sent in all your tax returns, Debt Management and Banking is likely to continue taking action against you, even if you pay all the tax demanded. It can even seek daily penalties if you fail to send in your tax returns. This is particularly likely to happen if there are two or more years' tax returns outstanding. It is therefore in your best interests to send in all your tax returns as soon as possible. At TaxAid, we frequently find that doing this reduces the size of the tax debt.
If you do owe tax, you may be allowed to pay this over a period of time
Although tax should normally be paid when it falls due, Debt Management and Banking may allow you to pay your tax over a period of weeks or months (and sometimes even longer).
Interest will be added although the amount involved may be small. Debt Management and Banking will continue to remind you that interest is being added to the amount you owe. HM Revenue and Customs, unlike some other creditors, has no discretion over the amount of interest charged. It cannot 'freeze' the interest to help you to clear the debt.
The rate of interest on unpaid tax is lower than many people realise, and is about at 7.5% per annum. (See the section Rates and Allowances to check current rate). So if for example you are one month late in paying a tax bill of £2,000, you will be charged interest of about £13.
There is very little risk of criminal prosecution or imprisonment
Some people fear that failure to pay tax on time may lead to criminal prosecution and imprisonment. In fact, this hardly ever happens.
HM Revenue and Customs does prosecute a small number of people every year, but all cases involve allegations of serious dishonesty or evasion. HM Revenue and Customs does not take such action just because someone has not paid their tax on time, or has difficulty finding the money to settle.
You have important rights as a taxpayer
HM Revenue and Customs has a Service Commitment, under which it promises to treat you fairly and courteously. If you have clear evidence that the person dealing with your case has been harsh, rude or unfair, you may complain and ask for your case to be handled by someone else.
For more information, see Your rights as a taxpayer.
What to do next?
For most people, there will be three points to consider:
1. Do you think that the amount demanded is wrong? If so, you need to take prompt action to get the figure sorted out.
For more information, see If you think the amount is wrong.
You may also need to come to an agreement with Debt Management and Banking about making interim payments while the final tax bill is sorted out.
2. If you accept that you owe tax which you cannot pay immediately, then you may want to seek some agreement with Debt Management and Banking.
For more information, see Seeking an agreement with the Revenue and Payment arrangements
3. If you cannot reach an agreement with Debt Management and Banking, you face the risk of enforcement action. It is important to understand what each procedure involves, and the defences that could help you.
For more information, see Distraint, Summary Proceedings in the Magistrates' Court, County Court proceedings or Bankruptcy.
If you have never declared your income
Some people owe tax but do not receive demands, because the Tax Office is not aware that they have been receiving taxable income, or of the full amount that they have received.
This situation is more serious, because you may be charged penalties for failing to report your income and, in the gravest cases, there is the risk of prosecution.
For more information, see If you have not declared your income.
It may be a good idea to seek help
Dealing with tax arrears can be complex and stressful, and it often helps to get independent advice.
If you cannot afford to pay an accountant or tax adviser, TaxAid may be able to help you.
For more information, see How we may help.
Other sources of free help are Citizens' Advice Bureaux, law centres and other advice agencies.
If you can pay for help, see the Frequently asked Question Finding an accountant or tax adviser.
Information provided by HM Revenue and Customs
You may also want to have a look at the following leaflets available free from all tax offices or on the HM Revenue and Customs website.
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