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Income Tax Arrears

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Dealing with tax debts (188kb)

Her Majesty’s Revenue and Customs (HMRC) can take a number of enforcement methods to recover an unpaid tax debt. These include:

distraint without a court order (bailiff action): HMRC does not require a court order to visit your business premises to take away your stock and equipment, up to the value of the debt. If there are not enough goods at your business premises, staff can go to your home and take goods from there (unless you trade as a limited company). If you refuse HMRC officials entry they could obtain a warrant to break in, but this is unlikely. They are more likely to take you to the county court or start bankruptcy proceedings;
county court action: where HMRC will obtain a judgment against you giving their staff access to enforcement methods such as execution (bailiff action through the county court or High Court – see above), charging orders or attachment of earnings if you are employed;
use the magistrates’ court: where the amount owed is less than £2,000. A summons to a hearing would be issued, which you should attend with your business and household budget to ask to pay by instalments. If you do not keep to these instalments a further hearing would be arranged to decide whether you should be sent to prison. For this you would need to be found guilty of ‘wilful refusal’ or ‘culpable neglect’ (see Imprisonment). The court may not decide to send you to prison but it cannot write off the debt;
bankruptcy: if the debt is for £750 or more HMRC may start bankruptcy proceedings against you (see Insolvency).

You must contact HMRC as early as possible to arrange time to pay any arrears.

Make an offer to pay off the debt at a rate you can afford, and use your business and household budget (recorded in your budget sheet) to support your offer. Even if your offer is refused, start paying what you can afford, no matter how small the amount.

HMRC operates a complaints procedure to ask for your offer to be reviewed if you think it has been unfairly rejected.

If the debt is based on a determination that you think is incorrect, you must submit your return as soon as possible. You should do this even if you think you may be too late. This may mean the debt is reduced and will also stop you being charged penalties for not submitting your return.

Tax paid late will attract interest. Phone us for advice.

The Inland Revenue and HM Customs and Excise have now been merged into one organisation, HM Revenue and Customs (HMRC). This new department has the same powers as before but can now deal with both income tax arrears and VAT debts.

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