Our experts tell you everything you need to know in cases of failing to pay your tax bill
Our experts at DSR Tax Refunds know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.
What action do HMRC take if you fail to pay your tax bill?
HMRC’s aim is to get every penny of tax revenue owed to them which means that if you fail to pay your tax bill altogether, they will take ‘enforcement action’ against you to recover the money you owe. This is why it is really important to contact HMRC as soon as you know you aren’t going to be able to pay on time – you might be able to avoid HMRC taking this action against you if you speak to them.
There are a number of ways in which HMRC can take enforcement action to recover the tax money you owe. HMRC can:
- Collect what you owe through your earnings or pension
- Instruct a debt collection agency to collect the money on behalf of HMRC
- Take your belongings and sell them (England, Wales and Northern Ireland only – they can’t do this in Scotland)
- Take money directly from your bank or building society account (England, Wales and Northern Ireland only – they can’t do this in Scotland)
- Take you to court
- Make you bankrupt or force you to close your business
You will also be expected to pay interest on any unpaid taxes as well as possibly having to pay a penalty or surcharge on top of this.
You can avoid enforcement action by getting in touch with HMRC as soon as you possibly can once you know you’re not going to be able to pay your tax bill. If you contact HMRC they may allow you more time to pay or allow you to pay in instalments. You must also contact HMRC if you disagree with the amount of tax they say you owe – refusing to pay your tax bill won’t make it go away, it will just lead to enforcement action.
How do HMRC take enforcement action through your earnings or pension?
HMRC can make deductions from your salary or pension to cover debts you owe in your taxes for Self Assessment or Class 2 National Insurance contributions. The way they recover those arrears is by making a change to your tax code so that you pay more tax until your arrears have been cleared.
They can also use this method if you have been paid too much in tax credits (as well as by making deductions from your Universal Credit payments).
If you earn less than £30,000, HMRC can take up to £3,000. If you earn more than this, HMRC can take more, depending on how much you earn. If you earn £90,000 or more, they can take up to £17,000 through your tax code.
If they are going to take enforcement action against you in this way, HMRC will write to you before the start of the next tax year to inform you that your tax code will be changing to cover your tax arrears.
If you don’t want your tax debt to be included in your tax code you will need to pay the full amount you owe to HMRC or contact them to arrange a payment plan.
How do HMRC take enforcement action through debt collection agencies?
HMRC can instruct a private debt collection agency to recover your tax debts from you. The debt collection agency will then write to you, informing you of what you owe – you should then make your payment directly to them, not to HMRC.
The debt collection agencies used by HMRC are:
- 1st Locate (trading as LCS)
- Advantis Credit Ltd
- Akinika Debt Recovery Ltd
- Apex Credit Management Ltd
- CCS Collect (also known as Commercial Collection Services Ltd)
- Drydenfairfax Solicitors
- Frederickson International Ltd
- Past Due Credit Solutions (PDCS)
- Resolvecall Ltd
- Rossendales Ltd
- Walker Love
You can check whether the debt collection agency which has contacted you is used by HMRC by checking on the GOV UK website. The debt collection agency will write to tell you what you need to do to clear your debt and you will deal with them, rather than HMRC, if they have been instructed against you.
How do HMRC take enforcement action by taking control of goods?
If you live in England, Wales or Northern Ireland, HMRC can attempt to recover your tax debt by taking your belongings and selling them. This is also known as ‘distraint’ in Northern Ireland. HMRC cannot take this action in Scotland. If this happens, HMRC will take your goods or belongings and sell them, using the money they make from the sale to pay your debt. You will also be charged certain fees on top of your debt to cover HMRC’s costs in taking this action.
In these instances, an HMRC officer will visit you and ask you to pay your debt. If you don’t (or can’t), the officer will make a list of all your possessions that could be sold to cover both your tax debt and the costs involved in selling your possessions (for example, advertising costs or auctioneer fees).
The HMRC officer will either take those possessions away immediately or leave them with you under a ‘Controlled Goods Agreement’ (called ‘Walking Possession’ in Northern Ireland) – this means that the HMRC officer or bailiff won’t take the possessions away immediately but they will be taken away and sold if you don’t pay within 7 days of the visit. If they sell for more than you owe, you are entitled to the difference but if they sell for less than you owe, you will still have to pay the difference.
What are the enforcement action fees?
On top of the outstanding tax bill, if enforcement action is taken against you, you will also have to pay certain fees on top of the tax owed. These fees are as follows:
|England and Wales|
|Issuing a notice of enforcement||£75||–|
|Take control of goods||£235||7.5% of the proportion of the main debt over £1,500|
|Goods taken and sold at auction||£110||7.5% of the proportion of the main debt over £1,500|
|If you owe under £100||£12.50|
|If you owe more than £100||Between 0.25% to 12.5% depending on the debt amount|
|Goods taken and sold at auction||Between 7.5% and 15% depending on the auction|
How do HMRC take enforcement action through your bank or building society account?
If you live in England, Wales or Northern Ireland, HMRC can take money straight from your bank or building society account to recover your tax bill debt. This is called ‘direct recovery of debts. HMRC will only do this under certain circumstances, which are if you:
- Have repeatedly refused to pay what you owe to HMRC
- Have received a face-to-face visit from HMRC to discuss your debt
- Would be left with at least £5,000 in your bank or building society account after they have taken the debt.
If HMRC plan to take this course of action to recover your tax bill debt, they will write to tell you that they intend to do this and will inform you of the process they will take to recover the money from your account and how you can contact them if you have any queries about what they are going to do.
HMRC can’t take this action in for any tax owed in Scotland.
What happens if HMRC take you to court?
If HMRC decide to take you to court to recover your tax bill debt, you could be left owing court costs as well as the tax and penalties you owe. The process will differ depending on whether HMRC are taking your case to a Magistrates Court, a County Court or a Sheriff’s Court (Scotland only).
Magistrates Court (England, Wales and Northern Ireland)
If you have separate debts of £2,000 or less and you have owed the money for less than a year, HMRC can start magistrates court proceedings against you. If HMRC take this action, you will get a court summons before the hearing which will explain what you owe and the details of the hearing (including when and where it is). If you pay your outstanding tax arrears before the court hearing date, you won’t need to go to court.
If you disagree with the amount on the court summons, you need to contact HMRC before the court hearing.
If you don’t pay your tax arrears, HMRC can ask the court to send bailiffs to take and sell your possessions to cover your debt and costs, make you bankrupt or force you to close your company.
County Court (England and Wales)
If HMRC take proceedings against you in a county court, the court will write to you to inform you of the proceedings and tell you how much you owe. If you disagree with the amount you owe, you may have to explain to the court why.
If you don’t pay, HMRC can ask the court to:
- Instruct bailiffs to take and sell your possessions to cover your debt and the associated costs
- Take money directly from your earnings
- Make you bankrupt or force you to close your company
- Order someone who owes you money to pay your debt
- Place a charge on your property – this secures the debt against your home or other property you own, meaning that you could lose your home if you don’t pay back what you owe. Once a charging order has been made, HMRC can apply to the court for another order to force you to sell your home
Sheriff Court (Scotland)
If you live in Scotland HMRC can apply to the Sheriff’s court for a warrant to collect your debt. Once they do this, you have 14 days from the date of the warrant to pay your tax debt and if you don’t pay, HMRC can ask the court to:
- Take the money you owe directly from your earnings or from your bank account
- Take and sell certain possessions from your property or your business premises
- Make you bankrupt or force you to close your business.
How can DSR Tax Refunds help?
Unfortunately, DSR Tax Refunds are unable to help once things have gone this far with HMRC. However, if you are a client of DSR Tax Refunds, things are unlikely to get this serious as you will have the benefit of the wisdom and experience of our expert team on your side. Our team of experts at DSR Tax Refunds are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.