Income Tax Debt Help & Advice

What happens if I owe HMRC money?

Contact HMRC as soon as possible if you receive a bill from them that you can’t pay. You will need to agree on a payment plan with them to settle the debt.

You might receive a P800 stating that you owe HMRC tax. Usually in this situation, they will recover the tax in instalments through your income over the next year. If you pay Income Tax via an employer or pension provider then this will happen automatically.

How long will HMRC give me to pay the tax I owe?

HMRC will usually give you 12 months to pay any money you owe to them, in instalments. They may arrange this with you directly or they may pass your details to a debt collection agency, who will collect the debt on their behalf. HMRC will only give you more than 12 months to pay back tax you owe in exceptional circumstances.

The debt collection agency has the same powers as HMRC in terms of collecting the debt but will not necessarily know the details regarding why you owe the debt in the first place and how you have fallen into arrears. You will still need to speak to HMRC if you have any questions about the amount you are being asked to pay or why.

It’s possible that HMRC will only ask the debt collection agency to recover part of your debt. If you are unsure if this is what has happened, the best course of action would be to ask for clarification from HMRC.

When they are first handed your case, the debt collection agency can contact you by phone or letter but they can’t come to your house to discuss the collection of the debt. You are always entitled to ask a debt collection agency to contact you via one preferred method. For obvious reasons, most people ask to only be contacted by letter as this allows you time and space to query the debt, seek advice and assess what you can afford to repay.

If you fail you reach an agreement with the debt collection agency about how to repay the debt, they will go back to HMRC and ask them to consider whether they want to pursue further enforcement action.

What happens if I don’t pay HMRC what I owe?

If you fail to pay, either after agreeing to pay back the amount in instalments or by ignoring their requests, HMRC will look at alternative ways of recovering the money.

If you need advice on your personal situation, use our AI chatbot to find the best way forward.

What action can HMRC take against me to get me to pay?

These include the following:

Attachment of earnings order.
If you receive a salary or pension, HMRC can make deductions if you owe tax for Self Assessment or National Insurance. They do this by changing your tax code to collect more each time you are paid.
They can take an additional £3,000 each year if you earn under £30,000. If your salary is higher than this, they can take more. If you earn £90,000 or more they can take up to £17,000 per year.

If they change your tax code, HMRC will write to inform you, but they can change it immediately, meaning that you’ll see different amounts on your next payslip or pension statement.

If you still owe money at the end of the tax year, it will continue to be collected next year via your new tax code.

Debt collection agencies

These agencies will recover money for HMRC but will not be able to enter into a discussion about the details of your debt, they are only instructed to collect it. Your rights when dealing with a debt collection agency instructed by HMRC are the same as with any other debt.

The first stage of a debt collection agency’s attempts to recover the money will be limited to phone calls and letters.

Seizing your personal possessions

If you fail to pay after a debt collection agency has been instructed to recover the debt, or if you have failed to come to an agreement with them, HMRC may send an officer to visit you and ask you to pay the debt.

This officer will make a list of your personal possessions of sufficient value to cover your debt and the costs of selling them either through advertising or auction. In this situation, goods are sold quickly and so are not usually sold at full market value. Your possessions will either be left with you under a Controlled Goods Agreement or the officer will remove them immediately.

If you haven’t paid the debt within a further 7 days, they will be sold. If they sell for more than the amount needed to cover the debt and the costs of selling them, you will receive any excess amount. If they sell for less than the amount you owe, then you will still be liable to pay the remaining debt amount.

Court proceedings

HMRC may take you to court if they have tried and failed to recover debt from you by other means. If they do so and you lose the case, you might have to pay back not only the debt you owe but also the court fees and any other costs that HMRC may have incurred.

Magistrates court

If you have separate debts of £2,000 or less and you’ve owed these for less than a year, HMRC can start magistrates court proceedings against you. Before the court hearing, you will receive a summons detailing the amount that you owe to HMRC and additionally, you will receive the date and location of the hearing. If you pay before this date, you will not need to attend the court hearing. If you want to dispute anything with HMRC you will need to do this before the date of the hearing. HMRC will ask the court for permission to either take possession of your personal items in order to sell them to settle the debt or make you bankrupt or close down your company.

County court

HMRC may also refer your case to a county court. If this happens, the court will write to you to explain how much they are being asked to recover and what you should do. If you dispute what you are being asked to pay, you may need to attend the court to make your case in person.

If you fail to pay, HMRC may apply to the court to take one of the following actions:

Instruct enforcement agents to seize your personal possessions to sell to cover your debt
Recover the money owed from your earnings
Make you bankrupt
Close your company down
Order a debtor who owes you money to pay the debt on your behalf
Place a charge on your property

Can HMRC look at or check my bank accounts?

Yes, HMRC can obtain information from your bank account to check that you’re paying the right income tax or capital gains tax, and additional taxes if you own a business.

HMRC will issue a third party notice if they want to see this information. Third parties can include financial institutions, lawyers, accountants, estate agents and in this case, your bank. At the moment HMRC can’t issue a third party notice without approval from you or a tribunal, and they need to prove that they need it.

In June 2020, HMRC announced that it intends to create a ‘financial institution notice.’ This will mean that they no longer need permission from you or a tribunal to ask a third party for your financial information. There are several points to note about this change:

The information will still need to be ‘reasonably required’ although HMRC will be judging this on their own behalf.
It can’t be a request that takes a lot of time to produce the answer to.
You should get a copy of the enquiry results unless tribunal rules otherwise.

What happens if I cannot afford to pay the money I owe to HMRC?

If you are unable to pay your bill, you will need to convince the office that sent you the latest letter or bill. They will assess your situation, based on information and evidence that you provide. They will do what they can to help if they agree that you can’t pay. This may include giving you extra time to pay in instalments or pausing recovery if your financial situation is temporary.

If you fail to pay after agreeing on an instalment plan or a break while you sort out your finances, HMRC may start further action against you.

You could use our AI chatbot to get advice on your situation before speaking to HMRC.

Can HMRC just take money from my bank accounts?

If you have refused to pay the debt, and an HMRC officer has already visited you to discuss repayment, then they can enforce direct recovery of debts. They will only do this if you would still have £5,000 left in your account once they have removed the amount you owe.

Before this can happen, HMRC must write to tell you that this is what they plan to do. In the letter, they must explain the process in full and how to contact them with any queries.

Can I legally write off my unpaid tax debts?

The first thing you might want to consider is establishing that the amount HMRC is asking for is correct and that you definitely owe it. HMRC are the same as any other organisation in respect of the fact that they will sometimes make errors and miscalculations. One way to do this is to check the amounts yourself, then also ask HMRC to confirm how they arrived at their calculation.

If the amount HMRC is trying to recover is correct, look at your budget to determine whether or not repayment is feasible, even if only in small amounts. This will help you to decide whether you are able to make any savings elsewhere in order to pay the debt, but will also provide a useful demonstration for HMRC of your financial situation. HMRC are not duty-bound to accept changes to your repayments, this will need to be negotiated with them.

If you are made bankrupt, this will write off the debt, but your assets will also be sold in order that your creditors, including HMRC, can be repaid as much of your debt as possible.

You can use an Individual Voluntary Agreement to write off HMRC debts but they have to agree to this. They may receive more of the debt that you owe this way than if you were made bankrupt. This may be a good option for you if you own a business or if you owe money to other creditors as well as HMRC.

You will need to owe more than £5,000 to qualify for an IVA. An IVA practitioner will contact everyone whom you owe money to ask if they accept this arrangement, and at least 75% of them will need to agree. If you have successfully set up an IVA, HMRC will no longer be able to take action against you for the debt. But, you must keep up the agreed repayments or the IVA practitioner can cancel the agreement and even make you bankrupt.

If you stick to the IVA payments, the information is removed three months after completion.