Can't pay Tax Debts?

This is not as uncommon as you would expect; many people fall into arrears every year. Your Statement of Account would normally reflect the discrepancy between what you owe, and what you have already paid. Shortly thereafter, a collector may contact you, either telephonically or by letter and ask when you can make a payment.

Things may not be as bad as they seem and it may be easy to solve. If the Revenue threatens with legal action, it is best to remain calm and not jump to any conclusions.

Ignore the Revenue at your peril

This is the worst thing you can do, as it will not help your current situation, it may in fact worsen your case. Act quickly and get assistance in this matter. No matter how small the risk of legal action is, you do not want to increase your chances of being prosecuted.

It may be the wrong account

The Statement of Account may contain errors and it is up to you to dispute the amounts reflected. This could be the result of a “determination” due to incomplete tax return(s) and is easy to fix.

Do not rely on the collector’s understanding of how tax is calculated, as they may not always be trained to that effect. Contact your Tax Office, as they are best equipped to give you proper advice. They will be able to do the adjustments on your Account.

Incomplete tax return(s) may mean you are accountable for any penalties, surcharges, interest and tax charged. You are liable for payment of these amounts until you complete your return and submit it. As these charges are legally enforceable, it will be in your best interest to speed up the process by submitting your return as soon as possible.

The Revenue will reverse the incorrect amounts and inform you of the correct amount, which you will then have to pay. They will still contact you from time to time to confirm you have submitted the return. There may be interest and other penalties and/or surcharges added after the reversal of the incorrect amounts. Submit the return as soon as possible, even if you have paid the amounts owed, as the Revenue will impose “daily penalties” on non-submission. Submission of the return frequently leads to a reduction in the size of the tax debt so it is highly beneficial to your finances to do it at the earliest opportunity.

How to Pay it off

You need not pay the entire sum in one go. The Revenue will allow you to pay it off over a certain period. It could be over a couple of weeks or it could even be over a couple of months. Be careful when paying these amounts, as the Revenue will still add on interest even though the amount may be quite small. You will receive constant reminders to pay off the debt and this may be beneficial, as the Revenue is unable to “freeze” the interest. You may be surprised at the rate of interest on unpaid tax. It is lower than what many people realise, at only 6.5& per annum.

Being one month late on a £2,000 bill will accumulate interest of about £11. It is an insignificant amount, but will nonetheless make an impact over a longer period.

Criminal prosecution

There is no real reason to fear prosecution over failure to pay tax. The chances of being prosecuted and sent to prison, though it does happen, are minimal. Every year, a very small number of people are prosecuted. What is important to note, however, is that these cases are all the result of serious dishonesty or large-scale evasion. You face a very small risk by not paying tax on deadline, or if you struggle to find money with which to settle the claim.

There is a separate risk you face by not paying: the Revenue can obtain a court judgment against you. Failing to pay this amount may result receiving a “judgment summons”, which requires you to explain to the court why you have not yet paid the amounts agreed on. Do not ignore the judgment summons, as you may receive a prison sentence.

Your rights as a taxpayer

You have a right to fair, courteous treatment and there are certain rules set in place to ensure that. The Revenue’s Service Commitment affords you the right to receive assistance from someone who will treat you with dignity and respect.

What is next?

Your next step would be to consider if the Revenue has made a mistake in calculating the amount owed by you. If this applies, you need to apply promptly to have the mistake rectified. If the amount is correct, but you are unable to pay the full sum, you should contact the Revenue. That will help you as an agreement can be reached to pay it off over a certain period.

This step is important, as you may face risk of enforced action if no agreement is reached. Understanding what each procedure involves and how to solve it will work in your favour.

Have you never declared your income?

As your case is more severe, it is highly advisable to get assistance. The Revenue is not aware that you owe tax, as you have never declared your income. There is a possibility that the Revenue may charge you penalties for not declaring your income. Prosecution is another, more serious possibility. You will need help before making any decisions. Your accountant or tax adviser should be able to aid you, with the UK Insolvency Helpline being another resource. You can contact the Citizens’ Advice Bureau or a law centre for assistance. They can give free advice.

Terms used

The “collector” is the person who contacts you and informs you about the tax arrears. “Collectors” are now part of the “Receivables Management Service”, which is shortened to RMS. There are two Account Offices in Cumbernauld, and Shipley respectively, which deal with payment applications.

The “Recovery Office”, normally named after the city or town in which it is located, deals with enforcement action against taxpayers who fail to make payment. This office is responsible for all your town’s payments. The “Enforcement and Insolvency Service” in Worthing, deal with all bankruptcy cases.

The Receivables Management Service does not deal with your personal claim directly but they may contact you if any returns are outstanding.

The Service office, referred to here as the “Tax Office”, issue and process the returns made to them.

There are different roles played by all parties and it would help you greatly to know which is which. You should contact the RMS and speak to a collector for any queries on your tax affairs. Do not confuse this with the “tax office”, as they deal with your tax return.

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