HMRC Self-Assessment Tax Debts

HMRC debts that arise from Self-Assessment Returns can be for both income tax and national insurance contributions.

It is important to treat them seriously as they can quickly increase and get out of control. HMRC also have multiple options available to them to recover debts that other Creditors don’t.

It is believed that across the UK there are over 5 million people who have to submit self-assessment forms each year.

Not all these people will be self-employed, although the vast majority will be.

Anyone can be asked to submit a Self-Assessment form by HMRC, although certain people, like those who are Directors of Companies, or Ministers of Religion, must submit them.

In addition to that, there are millions of people across the UK who have to submit Self-Assessment Forms, as although they are employees, they have second sources of income.  Also, if you earn more than £50,000 per annum and you or your partner receives Child Benefit, you must submit a Self-Assessment Return.

What are Self-Assessment Forms?

Self-Assessment Forms are declarations of your income.  It allows HMRC to calculate your Income Tax liability and also your liability to pay National Insurance Contributions.

What Type of Income is Taxable?

A wide variety of income types are taxable and this includes:

  • Profits.
  • Bank Account Interest.
  • Rental income.
  • Dividends.
  • Sick/Maternity Pay (contractual and statutory)
  • Social Security Benefits and Tax Credits
  • HMRC Self Employed Support Grants
  • Bonuses.

What Date must you make your Return by?

Self-Assessment Returns must be submitted by the 30th September each year, where you submit paper returns. If you submit your Returns online you have to the 31st January. Where you make online returns, it is sensible to make these well in advance of the deadline, to ensure you can access your online account and are not rushing to submit Returns as the deadline approaches.

How is your Tax Bill made up?

You receive your Tax Bill from HMRC once you have submitted your return.

It will usually consist of two parts. These are

  • Payments on Account; and
  • Balancing Payments.

What is a Payment of Account?

A Payment on Account is half the total amount you were calculated to owe in Tax in the preceding year.  This goes to paying your Tax for the next year.

Your first Payment on Account becomes due on the 31st January.  This is for that financial year, even though you cannot submit a Return until after the end of the financial year on the 5th April.

It is basically an estimate of what HMRC think you will owe, based on what you paid in the previous year. There is a second Payment on Account that doesn’t become due until the 31st July.

If you believe your Payment on Account is wrong, you can request HMRC recalculate it based on what you think you will earn.

This means if you think your income will be less you can tell them and have your Payments on Account reduced.

If you think your earnings will be more, you can have your Payments on Account increased. This may help you avoid a larger balancing payment later.

Balancing Payments

Balancing Payments only become payable once a year and that is on the 31st January and that is after you submit your Tax Return. This is after your correct liability for the preceding year is calculated.

A Balancing Payment is what the name suggests and is the balance still outstanding after you have made your two Payments on Account on the 31st January and the 31st July. If your Payments on Account were sufficient to cover your liability, you will not have a Balancing Payment to make. If you overpaid, you may be entitled to a tax rebate.

What if you cannot Pay?

The first thing you should do if you think you are going to struggle to pay your Tax Bill is make sure you bring all your Tax Returns up to date and submit them to HMRC.

This will allow them to calculate what you actually owe. It will also help you avoid penalties for not submitting your forms on time.

You should also make sure HMRC are using accurate income estimates of what your income is when calculating Payment on Account.

Remember Payments on Account are half what you Tax liability was the previous year, so if your income has dropped, it may be possible to request the amount you should be Paying on Account be reduced.

Requesting Recovery from PAYE Income

If you think you will struggle to pay your Bill by the 31st January and you are also employed as an employee in another job, one option you may have, is to request HMRC recover your tax debt from your other PAYE income. 

This may help people whose self-employed income is not their only source of income and also earn money as an employee.

To do this, however, you must request it before the 30th December and have submitted your tax return, by the 31st October, where you submitted a paper return, or by the 30th December, where you submit an online Return.

You also must:

  • Owe less than £3,000;
  • Be able to repay your debt within 12 months.

You cannot pay your tax this way if you don’t earn enough to pay tax through the PAYE System, or you would have to pay more than half your income in tax via the PAYE System.

Also you  won’t be able to use this Scheme if you would have to pay more than double what your normally pay in Tax.

Time to Pay Arrangements

Another option, if you believe you will struggle to pay your bill, is to seek a Time To Pay Arrangement with HMRC.

If you are going to request a Time to Pay Arrangement from HMRC, you should do it sooner rather than later, to avoid any penalties. You should, therefore, aim to apply before the debt becomes due for payment.

HMRC do not need to enter into a payment plan with you, but they may if they genuinely believe you cannot pay your bill.  Where they do enter into a Payment Plan, they will require you to pay by Direct Debit. You need to maintain these payments or they will cancel it and move the debt to their recovery department.

Interest is payable on debts being paid via a repayment plan.

To enter a Payment Plan you:

  • Must have all your Self-Assessments up to date;

  • Cannot have any other repayment plans in place with HMRC;

  • The debt you owe must have been due for payment within 60 days of you applying for the plan;

  • You must owe less than £30,000

To set up a payment plan, you can do this online or contact:

Self-Assessment Payment Helpline
Telephone: 0300 200 3822
Monday to Friday, 8am to 4pm (closed on bank holidays)

Penalties and Sanctions

If you fail to submit your Self-Assessment Form on time or you are late in paying a debt that has become due, HMRC can apply a number of penalties and sanctions.

If you are late in submitting your return on time, HMRC can apply a penalty of £100. If you don’t submit your return with 3 months of it becoming due, they can then apply a daily charge of £10 per day for another 90 days, bringing the total to £1,000.

They will also charge interest on any bills you are late in paying and can apply 5% of the total tax owed to your bill at intervals of 3, 6 and 12 months.

If you have a reasonable excuse, it may be possible to appeal these fines.

Types of Recovery

If you don’t pay your bill by its due date and don’t enter into an arrangement to allow HMRC to recover the debt from other sources of income or through a Time to Pay agreement, HMRC have multiple other methods of recovery available to them.

The first of these is via your earnings by changing you Tax Code.

  • If you earn less than £30,000, they can recover up to £3,000 a year.
  • If you earn more they can recover more, depending on your salary.
  • If you earn more than £90,000, they can recover up to £17,000 per year.

They can also send the debt out to private Debt Collection firms for collection.

Firms HMRC use are:

  • 1st Locate (trading as LCS)
  • Advantis Credit Ltd
  • Bluestone Consumer Finance Limited (trading as Bluestone Credit Management)
  • BPO Collections Ltd
  • CCS Collect (also known as Commercial Collection Services Ltd)
  • Moorcroft
  • Oriel Collections Limited
  • Past Due Credit Solutions (PDCS

Alternatively HMRC can take you to Court and legally enforce recovery of  the debt. They can also use the Summary Warrant procedure in Scotland.

Enforcement of a Debt

To constitute a debt so that it can be legally enforced, HMRC have a number of options open to them. 

First, they can use the Summary Warrant procedure, which is similar to what Local Authorities do for Council Tax debt. Where they use the Summary Warrant procedure, there is no Court hearing and a 10% surcharge will be applied to the debt. Interest, however, will not accrue on the debt.

They can also take you to Court like other Creditors can and use the Simple Procedure or Ordinary Cause Procedure.  If they do this and obtain a Court Order, they can apply a judicial rate of interest of 8%.

Sheriff Officers and Messenger at Arms

Once they have obtained a Summary Warrant or traditional Court order they can then pass the debt to Sheriff Officers and Messenger at Arms for enforcement.

Diligence Stoppers

All the above types of recovery in Scotland are known as Diligence and are covered governed by Scots Law.

As such, you can use Diligence Stoppers under Scots Law to prevent these types of Diligence.

The types of Diligence Stoppers that can be used to stop the recovery of HMRC debts using Diligence are:

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