Step 3 Dealing with your priority debts

Income tax

Important:

tax returns

HMRC will not accept an offer to pay arrears unless your returns are up to date. If you are having trouble putting in your tax return, for example, because you have lost your figures, or your accountant is holding on to your books because you have not paid their bill, contact us for advice.

Accountants

You must contact HMRC as soon as possible to arrange time to pay income tax arrears.

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

If you think your offer has been unfairly rejected, ask HMRC to review it under their complaints procedure.

If your tax return is late, HMRC will decide (‘determine’) how much you owe them. If your debt has been worked out in this way, you must send in your tax 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 sending in your tax return. You will be charged interest on any tax you are late paying.

HMRC can use a number of enforcement methods to recover an unpaid tax debt. These include the following.

Debt collection agencies

  • HMRC may pass your debt on to a debt collection agency. They are not bailiffs and have no rights to force entry to your business or home and take goods.
  • Use Your budget to make them an offer to pay by instalments based on what you can afford.

Bailiff action without a court order

  • HMRC does not need a court order to visit your business premises to take away your stock and equipment, up to the value of the debt. This is known as taking control of goods.
  • If there are not enough goods at your business premises to cover your debt, HMRC staff can go to your home and take goods from there (unless you trade as a limited company). If you refuse to let HMRC staff into your home or business, they could get a warrant to force entry, but this is rare. They are more likely to take you to the County Court for a money judgment or to start bankruptcy proceedings.

Deductions from bank accounts without a court order


Information

types of tax

HMRC have the power to take money out of your bank account for any type of debt owed. This includes income tax, VAT and National Insurance contributions.

  • If there is more than £5,000 in your account and you owe HMRC more than £1,000, they can take money out of your account to pay the debt. HMRC do not need a court order to do this.
  • They can do this after 30 days of sending you the letter telling you how much income tax is owed. However, they are more likely to do this if you are persistently late paying your income tax bill, or if they find it difficult to get in contact with you.

County Court action

  • HMRC can apply to the County Court for a money judgment. If you do not make the payments the court has ordered, HMRC can take further action against you.
  • This includes a charging order where any properties you own are used as security for the debt, taking money from your bank account and taking money from your wages if you are employed.

What if my creditors take court action?

Bankruptcy


See our fact sheet:

Income tax debt.

  • HMRC can apply to make you bankrupt if the debt is for £5,000 or more. This is more likely if you owe tax from a number of years, or if you agree a repayment offer and then do not pay. They will look at making you bankrupt even if you have no assets, and you will usually have to stop trading.