If you can’t afford to pay your tax bill in one go, the first thing to do is to make sure that the debt is reduced as far as possible by filing all outstanding tax returns, appealing against any penalties and making a claim to reduce payments on account where possible.

If you still can’t afford to pay your Self Assessment debt, HMRC may agree to payment by instalments.

Debt Collection Agencies

Sometimes you may be contacted by a Debt Collection Agency on behalf of HMRC.  You should check that the agency is genuine by comparing it to the list on the Gov.uk website.

Debt Collection Agencies have broadly the same powers as HMRC to agree time to pay over up to 12 months. They will not have any understanding of how the debt has arisen and any queries about the amount should be raised with HMRC. Sometimes HRMC ask Debt Collection Agencies to collect only part of a debt and the amount being pursued may not be the total amount due.

Debt Collection Agencies are authorised to contact taxpayers by phone and letter; they are not authorised to carry out personal visits. If the Debt Collection Agency fails to reach an agreement with a taxpayer they will refer the case back to HMRC to consider further enforcement action.

DMB Time to Pay Agreements

Although tax should normally be paid when it falls due, HMRC’s Debt Management & Banking (DMB) Team may allow you to pay your tax over a period of weeks or months. Only in exceptional circumstances will HMRC consider giving you more than 12 months to pay your tax.

If you try to seek an agreement, DMB will want to know why you can’t pay the debt immediately and in full. Normally you will make contact with DMB by phone. You may be asked a lot of personal questions. For example, DMB may want to know what other members of your family earn, or what you spend on clothes or holidays.

You can choose not to discuss these matters, but this may increase the risk of enforcement action.

Depending on your circumstances you might ask DMB for:

• a payment arrangement;

• suspension of collection action for a period of time;

• waiver of the tax (remission).

DMB’s approach is to separate taxpayers into two categories, the genuine “can’t pay” and the “won’t pay”. Taxpayers who make no attempt to contact DMB are treated by default as people who “won’t pay”. Individuals who come to Voluntary and Community Sector organizations for advice are normally treated as genuine “can’t pay” cases, once contact with DMB has been made.

Most agreements involve making a payment arrangement. Typically you offer to pay a certain amount each week or month, until the tax plus interest is cleared. Taxpayers with a good compliance record – those who have previously paid their tax on time and kept their returns up to date – can make a good case for an arrangement that suits their current circumstances. Normally HMRC will want to be paid by direct debit.

“Can’t pay” taxpayers who want a payment arrangement will be expected to:

• complete all outstanding tax returns very quickly;

• pay the arrears of tax, plus interest, and any penalties over the period of the arrangement; and

• show that they can provide for on-going tax bills that will arise during that period (a time to pay plan must cover not only the tax currently outstanding, but also any future tax liabilities as they arise during the period of the plan. This would include “payments on account” in January and July if you are self employed).

The maximum timescale allowed for doing this will normally be 12 months.  Time to pay arrangements for longer than 12 months will only be permitted in exceptional circumstances. VAT or PAYE debts are normally collected on a shorter timescale. Even with a time-to-pay agreement in place, interest will still be charged on any overdue tax.

If you feel under pressure to pay a bill which you think is incorrect, or one which includes a “determination” (an estimated bill), then you should seek advice. You may need to make a provisional agreement with HMRC to pay some of the tax bill, while the correct amount is worked out.

As HMRC statements of account normally cover only transactions since the last statement, it can be difficult to work out what you owe and why. You can ask for a full statement of account from DMB to list exactly how the bill is made up – this is called a “Statement of Liabilities”. If you are registered for self assessment on-line, you may be able to find out more about your tax bill through the on-line system.

DMB will require details of savings and assets plus full income and expenditure information before an extended time to pay agreement is accepted. Short-term time to pay agreements of a few months duration only, may be agreed with less detailed information.

DMB prefer this information to be given by phone during the initial contact if possible. Your expenses will be reviewed by the Debt Management officer and any which are thought to be unusual, large or exceptional may be challenged. It may well be worth taking advice to help prepare these figures. If you are unsure about the answer to a question from DMB, do not guess. Instead, say that you are unsure of the answer and call back once you have checked the figures.

You are more likely to receive a sympathetic response if there are exceptional, unforeseen reasons why you can’t pay, such as a sudden illness, or the insolvency of a major customer.

HMRC may refuse requests for a payment plan if it appears that such requests are being made routinely, year after year.

If Debt Management & Banking accepts your proposal

If DMB or a debt collection agency appointed by HMRC, agrees to your request for time to pay, you should receive confirmation of this in writing. If you receive a verbal agreement at a meeting or on the telephone, ask for it to be confirmed in writing. If not, there could be difficulties later if there is a dispute over exactly what was agreed.

Having an agreed payment plan in place will mean that you avoid further late payment penalties.

If Debt Management & Banking rejects your proposal

DMB has a duty to consider your proposal, but there is no automatic right to time to pay. If you believe that your request has been rejected out of hand, without being properly considered, you can make a complaint and ask for your proposal to be referred to a more senior official and for a full response in writing.

If you fail to get agreement you should still pay what you can, when you can;  unless, for example, it appears that bankruptcy might be inevitable.

If you fail to agree a payment plan with DMB, then recovery action is likely to be taken. Recovery action may include legally taking control of goods, court action in the Magistrates’ Court or County Court, or Bankruptcy proceedings.

Other points on time to pay

Lump sums

DMB is very unlikely to accept a lump sum of less than the tax due in full settlement. But an offer of a lump sum may help to persuade DMB to accept the rest of the tax over a longer period of time.

Only offer what you can afford

When making a proposal, be careful not to offer more than you can afford. If you fall behind with an agreed schedule of payments, HMRC may end the agreement and initiate enforcement action against you. If you know in advance that you are likely to miss an instalment, contact HMRC at once and try to negotiate an extension.

Short delays while you sell an asset

If you are requesting a short delay (eg to allow you to raise funds by selling a property), DMB may agree to grant you extra time to settle your bill.

Reducing payments on account (where tax bill lower than last year).

Often your tax demand will include “payments on account”. These are due on 31 January and 31 July, and are based on the previous year’s tax bill. If you think that your tax bill this year will be lower than the previous year, you can “claim to reduce the payments on account”. This can be done on-line if you are registered for self assessment on-line, or by phone 0300 200 3310. Alternatively you may download and send in form SA303.

Suspension of collection action for a period

DMB may agree to suspend payment demands for a period if you are temporarily unable to pay the tax. This might because you are unemployed or have short-term business problems or are ill.

Typically, such an agreement may last for three or six months, with a review of your circumstances at the end of that period.

Waiver of tax

Very occasionally HMRC decides not to pursue payment of a tax bill. This is sometimes known as remission. The tax is not permanently written off, but you will not receive further demands unless your circumstances improve unexpectedly.

Remission is most common in the case of a person who is elderly, sick or long term unemployed, and has no assets and lives in rented accommodation. If you think you might be eligible for remission, you should seek further professional advice on to how to put your case to DMB.

Freezing of interest

HM Revenue and Customs cannot agree to “freeze” interest on the tax, so as to help you to clear the debt. HMRC is obliged by law to charge interest.

Tip: If you have not yet fallen behind with your tax payments, but expect to receive a demand in the near future which you will be unable to pay, contact HMRC’s Business Payment Support Service(BPSS) on 0300 200 3835. The BPSS can agree a payment arrangement in advance, which may be easier than negotiating with DMB after a demand is received. For more information see http://www.hmrc.gov.uk/payinghmrc/problems/bpps.htm

Sam Stent, Tax Adviser at TaxAid

If you are on a low income and need further help or advice with your tax affairsl, call the TaxAid helpline on 0345 120 3779 (lines open 10-12 Monday-Friday).