Free Debt Advice

Do not panic

They 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

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. If daily penalties are threatened you need to take immediate action. If imposed, these penalties remain payable even if no tax is owing. They can be very expensive - up to £60 per day per outstanding tax return.

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 Debt Management and Banking. For example, the statement might be based on an estimate of your income, because you have not sent in your tax return. This estimate is called a "determination". It is usually possible to get it corrected within certain time limits.

However, by law, the tax is due and payable - even if it is based on estimated or incorrect figures. There is little point in trying to raise such issues with Debt Management and Banking, when they are chasing you for unpaid tax. It will usually be necessary to contact the tax office which deals with your tax return to get the necessary adjustments made.

If you have not completed your tax return(s) you will be liable for any penalties, surcharges, interest and tax charged under a 'determination'. These are treated as being wholly correct and are enforceable until such time as the completed tax return is submitted, and the tax bills are revised.

Once the tax return has been submitted, the amount of tax is revised to the amounts indicated by the return and you will only then be asked for this revised debt plus interest and any penalties and/or surcharges which remain due in respect of the revised debt.

Debt Management and Banking is concerned not just with payment of outstanding tax, but also with bringing the taxpayer's affairs completely up to date. If you have not sent in all your tax returns, Debt Management and Banking is likely to continue taking action against you, even if you pay all the tax demanded. It can even seek daily penalties if you fail to send in your tax returns. This is particularly likely to happen if there are two or more years' tax returns outstanding. It is therefore in your best interests to send in all your tax returns as soon as possible. At TaxAid, we frequently find that doing this 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, they 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. They will continue to remind you that interest is being added to the amount you owe. HM Revenue and Customs, unlike some other creditors, has no discretion over the amount of interest charged. It 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 about at 7.5% 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 £13.

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.

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

You have important rights as a taxpayer

HM Revenue and Customs 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.

You may also need to come to an agreement with them about making interim payments while the final tax bill is sorted out.

2. If you accept that you owe tax which you cannot pay immediately, then you may want to seek some agreement with them.

3. If you cannot reach an agree, 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 Tax Office 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.

Please contact us for further information

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