Can't Pay Your Tax

Introduction

Here we explain the main points that you may first need to consider if you cannot pay your tax.

Note on terms used

In this section, we refer to the person who pursues you for unpaid tax as the 'collector'.

This is the traditional name for the person who deals with the 'collection of tax'. They are now part of the 'Receivables Management Service' - shortened to 'RMS'. Most initial applications for payment are sent from the two 'Accounts Offices' in Cumbernauld and Shipley.

If matters need to be pursued locally e.g. for enforcement action where payment has not been made, this is dealt with by a 'Recovery Office'. This is normally named after the city/town in which it is located and which has responsibility for the address at which you live/trade. Cases involving bankruptcy are handled centrally by their 'Enforcement and Insolvency Service (EIS), which is in Worthing .

People within RMS do not deal directly with your personal return, although they may contact you if your returns are outstanding.
The issue and processing of returns is dealt with by 'Service' offices which we refer to as your 'tax office' again on the commonly used traditional basis of recognition.
If you have a problem with payment you must recognise the different roles these people have in dealing with your tax affairs and it is someone from RMS you must contact - a 'collector'. This is normally a different person from the Revenue staff who deal with your tax return, whom we refer to as your 'tax office'

The first signs of trouble

Many thousands of people get into arrears with their tax every year. You may first become aware of such a problem when a debt appears on your Statement of Account .

After a short time has passed, you will be contacted by a collector - by letter or telephone - who will want you to make immediate payment.

Do not panic

The Revenue may threaten you with legal action, which can feel very frightening. However, it is important not to panic, as things may not be as bad as they seem. Try to stay calm and consider the following points.

Do not ignore a statement of account or a demand from a collector

The worst thing is to ignore the matter. If anything can be done to help your situation, it is usually best to act quickly. If you do nothing at all, you increase the risk of legal action against you.

The amount demanded may be wrong

In many cases ,you may not agree with the amount of tax shown on a Statement of Account, or demanded by a collector. For example, the statement might include a "determination" (estimate) because tax return(s) have not been completed. If so, it is usually possible to get it corrected.

However, a collector chasing you for unpaid tax may not be trained to understand how tax is work ed out, so you may be wasting time trying to persuade him or her that the figure is incorrect. It will usually be necessary to contact your tax office, which deals with your tax return, to get the necessary adjustments made.

If you have not completed your return(s) you will be liable for any amounts of penalties, surcharges, interest and tax charged under a 'determination' (an estimate) and all these are wholly correct and enforceable until such time as the completed return is submitted. However once this is done the amount of tax is revised to the amounts indicated by the return and you will only be then asked for this revised debt plus interest and any penalties and/or surcharges which remain due in respect of the reduced debt.
In these 'non-return' cases the pursuit of outstanding amounts is primarily aimed at submission of the required return and even if you pay everything demanded action will continue to be taken to obtain the return. This is normally by highly punitive 'daily penalties'.
It is not therefore in your best interests to delay submission of any return and we frequently find that it reduces the size of the tax debt.

If you do owe tax, you may be allowed to pay this over a period of time

Although tax should normally be paid when it falls due, the Revenue may allow you to pay your tax over a period of weeks or months (and sometimes even longer).

Interest will be added although the amount involved may be small. The Revenue will constantly remind you that interest is being added to the amount you owe, and has no discretion and cannot 'freeze' the interest to help you to clear the debt.

The rate of interest on unpaid tax is lower than many people realise , and is currently set at 6.5% per annum. So if for example you are one month late in paying a tax bill of £2,000, you will be charged interest of about £11.

There is very little risk of criminal prosecution or imprisonment

Some people fear that failure to pay tax on time may lead to criminal prosecution and imprisonment. In fact, this hardly ever happens.

The Revenue does prosecute a small number of people every year, but all cases involve allegations of serious dishonesty or evasion. The Revenue does not take such action just because someone has not paid their tax on time, or has difficulty finding the money to settle.

However, it is important to be aware of a separate risk. If the Revenue obtains a court judgment against you for unpaid tax, and you fail to pay the amount due, you may receive a 'judgment summons' requiring you to attend the court to explain why you have not paid. If you ignore a judgment summons, and do not attend the court, you may receive a prison sentence.

You have important rights as a taxpayer

The Revenue has a Service Commitment, under which it promises to treat you fairly and courteously. If you have clear evidence that the person dealing with your case has been harsh, rude or unfair, you may complain and ask for your case to be handled by someone else.

What to do next?

For most people, there will be three points to consider:

1. Do you think that the amount demanded is wrong? If so, you need to take prompt action to get the figure sorted out.
2. If you accept that you owe tax which you cannot pay immediately, then you may want to seek some agreement with the Revenue.
3. If you cannot reach an agreement with the Revenue, you face the risk of enforcement action. It is important to understand what each procedure involves, and the defences that could help you.

If you have never declared your income

Some people owe tax, but do not receive demands because the Revenue is not aware that they have been receiving taxable income, or of the full amount that they have received.

This situation is more serious, because you may be charged penalties for failing to report your income and, in the gravest cases, there is the risk of prosecution.

It may be a good idea to seek help

Dealing with tax arrears can be complex and stressful, and it often helps to get independent advice.

If you cannot afford to pay an accountant or tax adviser, Money Advice Direct may be able to help you.

Other sources of free help are Citizens' Advice Bureaux , law centres and other advice agencies.

Information provided by the Revenue

You may also want to have a look at the following leaflets available free from all tax offices.

• Code of Practice on Collection of Tax (Code of Practice 6)
• Distraint (Collection 1)
• Magistrates' Court proceedings (Collection 2)
• County Court proceedings (Collection 3)
• Bankruptcy and winding up (IR & IR5)