Tips for negotiating tax arrears with HMRC

The collector will often want full settlement of the tax that you owe. You have the option of arranging to clear the debt over a longer period, if this is not possible. This can be done either by letter or by having a meeting.

Be aware that the collector may ask a number of important questions, which will help to determine how you can afford paying the arrears on your tax. These questions could relate to why you are unable to pay the full amount, how many other working members there are in your family and how much they earn, and even how much you spend on luxury items. Do not feel offended by these questions. It is very important to understand that the collector may not force you to discuss your personal affairs.

If you follow this route, the collector may take enforcement action against you. Enforcement action is any action taken in response to non-compliance.

This could take the guise of one of the following: distraint, summary proceedings in the magistrate’s court, county court proceedings, or bankruptcy. Distraint is the seizure of goods and having it auctioned off.

Enforcement action may not affect you severely

Here are some reasons why enforcement action might not affect you:

1. No action is taken for amounts below £100
2. If you have no real possessions of value, then distraint should not give you sleepless nights, and
3. If you suffer from large debts, you may find bankruptcy affords you welcome relief from your creditors, though you should first consider what exactly it will mean to you.

Making arrangements with the HMRC

An arrangement is a far more appealing thought than having to face enforcement action. It could consist of one of the following: a payment arrangement, suspension of collection action for a period, or a waiver of the tax.

Making payment arrangements

A payment arrangement is when you pay off the amount owed in weekly or monthly installments. This will stay in effect until the full amount and any interest is paid off. These agreements normally last for three or six months and is followed by a review of your circumstances at the end thereof.

A waiver of tax may not happen very frequently, as it means the Revenue will no longer be pursuing the tax owed to them. Sometimes known as remission, it means they will not make any demands until your circumstances improve.

The elderly, sick or long-term unemployed with no assets of particular value may benefit most from remission.

The Revenue may not freeze the interest owed on the tax, as this is a legal charge. It may help you to clear the debt quicker but the Revenue has to charge interest in full.

The Revenue may be loath to accept a lump sum to settle the debt. A lump sum, that is, of less than the full amount required for full settlement.

Act quickly to effect an agreement

Do not delay in asking for an agreement. The Revenue prefers good communication at all times. Keep them informed of your changing circumstances, as they will try to assist however possible. Should you not keep them informed, they will be more likely to use severe collection methods.
In its Code of Practice on Collection of Tax (Code of Practice 6), the Revenue says:
If you know that you will have difficulty paying your tax when it is due you should tell us as soon as possible. The more you keep us informed, the more we are likely to be able to help." Collection methods used The Revenue is different to other creditors. In some instances, it may reject a proposal even though it is a well thought through, though in other circumstances it may be more sympathetic than other creditors.

Policy issues

Even though it may not seem as such, collectors have the well-being of the entire tax system at heart. At times, they may use harsh methods and may declare someone with no assets bankrupt. This is to prevent the person from accumulating more debt. The Revenue may decide against enforcement action that would lead to a business closing their doors. This is in an effort to reduce the number of redundancies.

What does a negotiation involve?

The collector will ask questions about your personal circumstances and will greatly appreciate as much information as you are able to give on the following:

1. Your age
2. Your health, and if there is a history of particular diseases in your family
3. I you are unemployed or dependent upon welfare benefits, and
4. If you have been paying tax on time.

It might be obvious, but it will only help your case if you are courteous, patient and not rude or aggressive towards a Revenue staff member. It will also be a great boon if you pay the Revenue before paying any other creditors and if this is the first time you are struggling with tax debts.

Factors the collector will take into account

The collector has a duty towards other taxpayers and should therefore act in a fair manner. The following factors will all affect his decision.

Your total tax debts: If the amount of tax debt is small, it will be easier to reach an agreement with the collector.

You are about to leave the country. The Revenue will not allow much discourse if there is a possibility of you leaving the UK.

Did the Revenue make the mistake in the issue of the tax bill? The Revenue should grant you a degree of leniency if there was a miscalculation and it was not your error.

Collectors may appear harsh to self-employed people. The collector may not understand all the difficulties involved in running a business. This may be a wrong perception, however, the collector may ask why no money was set aside to cover the tax from the outset, especially since self-employed people are responsible for their own tax.

Know who to speak to

You will not only have the distinct advantage of getting faster assistance when you know who to speak to, you will also ensure that the right person deals with your particular problem.

Someone from the Receivables department assist people who are unable to make payments. This can be at one of the Accounts Offices, the local Recovery Office or Enforcement and Insolvency Service. It might be a good idea to contact the office who you spoke to most recently.

They may contact you by telephone. This gives you the opportunity to discuss things in as much detail as possible. It is a good idea to stay in contact with them and to reach an agreement before things get more complicated. Enforcement action, summary proceedings, etc should be avoided and the more knowledge you have over which office is able to help, the smoother the outcome should be.

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