Tax Debt and HMRC – What are the Implications?

The Responsibility of HMRC to Collect Tax Debt

There are two certainties in life – Death and Taxes. Tax is a fact of life, it allows society to function in that it funds the essential services and infrastructure that we all benefit from. In an ideal world, those who are most able should bear more of the burden and everyone would pay their fair share. In practice, many of those who are most able, do their best to share as little of the burden as they can get away with within the rules and others do their best to pay as little as possible whether or not the rules allow it.

Clearly there has to be a mechanism to make sure that everyone pays what they’re supposed to and it falls upon HMRC to pursue those who don’t pay, which also affects those who, for whatever reason, can’t pay.

Anyone who’s had to call HMRC to discuss their tax affairs will know that the phone is generally answered by someone who’s reassuringly human. The staff are sympathetic and more than willing to listen to those who call them, but they are also well accustomed to sniffing out a tall tale.

A lot of very clever people invest a lot of time finding ways to pay less tax. HMRC have a responsibility to collect all the tax that’s legally owed. Every day they have to deal with people who are well practiced at coming up with reasons why they haven’t paid what they should, or are trying to avoid paying what they should. HMRC have the unenviable job of trying to distinguish between those who want to pay but are in genuine financial difficulty and those who are simply ‘trying it on’.

Ultimately tax has to be paid if it’s owed and it’s the responsibility of HMRC to collect. While they may offer help, they are limited in what they can offer and do have a number of powers to enforce the payment of tax debt should they feel it is warranted.


What can HMRC do to collect Tax Debt?

A surprising number of people have an exaggerated idea of the powers that HMRC can use for the collection of tax. While it’s true that HMRC can pursue people through the criminal courts, this is generally for fraud and the aggressive evasion of tax, rather than those whose circumstances have led to them being unable to pay.

The ways HRMC can enforce the payment of tax generally falls into one of five categories.

  • Deduction from pay at source – The PAYE tax system allows employees to pay their income tax and national insurance contributions as they earn it. HMRC can make use of this system to deduct what’s owed to them the same way.
  • Distraint – This relates to the seizure of goods from the debtor with the intention of them being sold at a public auction and the proceeds going towards settling tax debt. There are strict rules about this and the conduct of bailiffs, so fears about doors being forced and goods forcibly seized are largely unfounded.
  • A Claim via County Court –As it sounds, HMRC might, if they consider it’s the best way to proceed, seek a county court judgement against you in respect of tax owed.
  • Magistrate Court Claims – If warranted, HMRC may elect to start their claim against you in the Magistrates court rather than the county court.
  • Direct Recovery – HMRC have the power to remove money direct from the bank accounts belonging to those who owe tax debt, but once again, there are rules governing this including how much they should leave behind and the treatment of vulnerable debtors.


How to Avoid Enforcement Action Being Taken

If you’re struggling to pay your tax bill, the best advice is to contact HMRC as soon as you become aware that you won’t be able to meet your tax obligations. Ideally, this should be before you’ve missed your payment, but even if you’ve already missed it, getting in touch and explaining is still preferable. HMRC are obligated to try to recover tax owed so even if they offer you time to pay or a similar arrangement, make sure you don’t commit yourself to it unless you’re absolutely sure you can meet the payments.

At Lines Henry, we offer a free consultation for those burdened by debts of all kinds, including tax debt. Feel free to contact us and discuss your situation and we’ll be able to advise what’s the best next step for you in your particular circumstances.