When You Can’t Pay Your Tax

In this article we want to explore the primary aspects of an inability to pay one’s tax.

Some terms to better help you understand this article are as follows:

Collector – The person who purses those who have not paid tax. Today these individuals are part of the RMS (Receivables Management Service). However, before a collector will pursue you, an initial application for payment is sent from one of the two Accounts Offices in either Cumbernauld or Shipley. If, instead local enforcement action must be taken for payment not having been made, the Recovery Office will deal with this matter. Usually, the Recovery Office is named after the city or town where it is located and this office has jurisdiction for the area in which you live or trade. In cases where a bankruptcy is involved, the EIS (Enforcement and Insolvency Service) in Worthing will get involved. Those employed by the RMS may contact you if your returns are outstanding, but they do not process your return themselves.

The issuing and processing of returns is handled by RMS offices which in this article will be called “tax offices” because that is what they are traditionally called in an unofficial sense. It’s important to realize that different people within the RMS have different roles so the “collector” who contacts you is usually a different person from the RMS who does not deal with your specific tax return – that would be the “tax office”.

Warning Signs of Impending Problems

Each year, thousands of individuals get into arrears with their tax. Normally, the individual is made aware of this situation when they see a debt on their Statement of Account. After a short time, a collector will generally get in touch via letter or telephone and ask for an immediate payment. It is important to remain calm and fight any sense of panic you feel.

The RMS can frighten people by threatening them with legal action, but it is still crucial that you don’t panic if this happens because the situation may not be as dire as it seems. Remain calm as you work through the situation and consider your options, as well as how you got into the situation.

The first thing to remember is that you should never ignore a statement of account or a demand from a collector because that is the worst action to take. If there is any chance that you can resolve your situation then you will want to act quickly because if you do nothing then you are inadvertently raising the risk that you will face legal action.

Remember, the amount being demanded could be incorrect. You may find that you disagree with what either the collector or the Statement of Account state is the amount of tax owed. In some instances your statment may include what is called a determination, which is an estimate and made because the tax return (or tax returns) have not been completed. If this is the case it can be corrected.

Unfortunately, the collector who is paid to pursue you for upaid tax may or may not be trained in how to understand the tax so you could well be wasting effort if you try to persuade them that the figure is incorrect. Generally you will need to contact your tax office to make the needed adjustments because they are the ones who deal with your tax return.

You will end up liable for penalties, surcharges, interest and tax charged on determination if you have not completed your tax return (or tax returns) which is not only correct, but enforceable until you have submitted a completed return. Once you have submitted the return the amount of tax will be revised so that they reflect the amounts shown on your return. Then you will only need to pay the revised debt plus interest and any outstanding penalties or surcharges that are still due in respect of the revised debt.

In cases of ‘non-return’, outstanding debts are pursued until the required return is submitted, so even if you pay all that is demanded, they will continue to take action in order to get that return submitted. Generally this means daily penalties. Therefore, it is not in your interest to always submit your returns in a timely manner.

There are some instances where, if you do owe tax, you are allowed to pay it over time. Although tax should always be paid when it falls due, the RMS allows some people to pay their tax over a period of weeks, months or longer, in certain circumstances. This does mean, however, that interest will be added to the total amount due, but it’s possible this interest will be small. Generally  in these instances the RMS will keep reminding you that interest is being added to the total because they have no discretion and are unable to freze interest in order to help you clear the debt quicker.

Interest rates on unpaid tax is actually lower than is commonly believed, right now it is set at 6.5% per annum. As an example, being one month late on a tax bill of £2,000 means you are charged £11.

Many people are afraid that failure to pay tax in a timely manner leads to criminal prosecution and imprisonment, but this rarely happens. The RMS does prosecute a few people each year, but these are mostly cases where the person is alleged to have been seriously dishonest or trying to evade the tax. The RMS won’t take this course of action simply because an individual has not paid tax on time or if they are having trouble finding money to settle. Yet, at the same time it is important to be aware of the risk that the RMS may try to obtain a court judgment against you for the unpaid tax. If you fail to pay the tax after this you may receive a judgment summons which requires you to attend court and explain why you haven’t paid. Ignoring a judgment summons and not attending court could result in a prison sentence.

It is important to understand that you have rights when you are a taxpayer. The RMS must hold to a Service Commitment and under this, it promises to treat taxpayers fairly and with courtesy. When you have clear evidence that the person who has dealt with your case was rude, unfair or overly harsh then you have a right to complain and ask that another person be assigned to your case.

After you have been contacted regarding unpaid tax, you will want to consider what to do next:

- Do you believe the amount being demanded is incorrect? If you do then do not hesitate to take action in order to get the figure corrected

- If you believe that you do owe tax, but you can’t pay immediately then you want to work out an agreement with the RMS

- In the instance that you are unable to work an agreement out with the RMS you may face enforcement action so it is important to understand each of those procedures and which defences could help you most.

There are people who have never declared their income and as result do not receive any demands from the RMS because it is unaware that the person has earned any taxable income or has been misled regarding the total amount earned. This situation is dangerous because the person may end up receiving a penalty for failing to report their income and that means the risk of potential prosecution.

If you are dealing with tax arrears, the situation can be stressful due to the complexity so you may benefit from outside counsel. You could benefit from help getting things straightened out through either a Debt Management Plan or, in more severe instances where you owe fifteen thousand pounds or more, an Individual Voluntary Arrangement (IVA).

Get started today sorting these issues out because waiting only makes your life more stressful than it needs to be.