Council Tax Arrears: the debt no-one asks for
Unlike other debts, such as credit cards and loans, Council Tax debt is not a debt you take out or ask for. It’s a local authority charge which we all have to pay when we have a home, unless we are eligible for a reduction, discount or exemption. It is sometimes called an involuntary debt.
This means even if you have avoided taking out other debts, you can still end up with debt if you miss Council Tax instalments and these can quickly build up when things become difficult.
How does Council Tax work?
The way Council Tax works is every year you become become liable for an annual charge. You normally receive your annual bill in March.
Your Council Tax bill is broken down into three parts. First there is the Council Tax charge; then there is the water charge; and third there is the sewage charge.
When you get your Council Tax bill, you get the opportunity to pay your bill in ten monthly instalments.
Why is it important not to ignore Council Tax Arrears?
It is important to not ignore Council Tax debt. In addition to the fact that you accrue it without borrowing, you have to remember you get a new bill every year, so it will continue to grow.
Ultimately, this may mean you could be subject to debt recovery procedures executed by Sheriff Officers or made bankrupt. Where you own your own home, this could mean you may lose it.
Reducing your Council Tax Liability – Discounts and Exemptions
You may be entitled to a 25% discount in certain circumstances. These are:
- You live on your own; or
- You have a resident carer who is not your spouse or partner or you only live with your child and they are your full-time carer.
You can also be entitled to a 25% discount if you live with another person, who would be exempt from paying Council Tax if they lived on their own.
Examples of when someone may be exempt for Council Tax, is:
- They are a full time student and in full time higher education and live on their own, or with other full time students; or
- They have a severe mental impairment.
A property can also be exempt for Council Tax for a number of other reasons, such as it is empty or was previously occupied by a full-time student.
It is advisable to ask your local authority whether you qualify for an exemption or discount.
Reducing your Council Tax Liability – Council Tax Reduction
You may also be able to reduce your liability for Council Tax by applying for Council Tax Reduction. This is a means tested benefit that is based on your income and can be applied for from your local authority.
You can explore your entitlement to council tax reduction and other benefits by completing a benefit check. To carry out a benefit check, visit our page here.
What happens when you don’t pay your Council Tax?
When you miss a payment to your Council Tax, you will receive a letter from your local council giving you seven days to make your monthly payment.
It will inform you that you have 7 days to make the payment and if you fail to make the payment you will lose your right to pay by instalments and become liable for the full amount.
If you make the payment and then miss another payment later in the year, the next reminder will inform you that if you miss a third payment you will not receive a reminder.
Council Tax Arrears Final Demand
If you fail to respond to the reminder and don’t make the payment, you will receive a final demand giving you 14 days to pay the full amount outstanding.
Many local authorities at this point may still enter into a repayment plan with you, but this has to be individually negotiated with them.
Council Tax and Summary Warrants
If you fail to pay the full amount off within the 14 days the Council can then apply for a Summary Warrant.
Summary warrant are the equivalent of court orders, however, unlike normal court orders, when a local authority applies for a Summary Warrant, there is no court hearing. However, when a Summary Warrant is granted a 10% surcharge is applied to your debt. This is a one off charge and unlike judicial interest that is applied to normal court orders, it is not applied annually.
Local authorities can then use the summary warrant to execute diligence. This is a legal term in Scotland that is used to describe legal procedures that can be used to recover a debt.
Examples of diligence and the most commonly used in Scotland are:
Before a Local Authority can execute any of these types of diligence, it first must serve a Charge for Payment. A Charge for Payment is a formal demand for payment that gives you 14 days to pay your debt. If you fail to pay your debt within 14 days, Local Authorities can then instruct Sheriff Officers to execute any of the above types of diligence.
An expired Charge for Payment also constitutes apparently insolvency, which means where you owe more than £3,000, the Council may be able to petition the court for your bankruptcy.
Where your only income is social security benefits, such as Job Seekers Allowance, Employment Support Allowance or Universal Credit, the Council may recover the arrears by direct deductions from your benefits.
Council Tax Arrears and Time to Pays
Once a Summary Warrant and a Charge for Payment has been served, there are still options open to you to try and pay the debt back by instalments. This is by using a formal solution that is provided by the Court where you can apply for a Time to Pay Order. This can be applied for after a Charge for Payment has been served.
Normally, the Local Authority would expect the arrears to be repaid within the financial year, before the next years Council Tax is due. However, the Court can allow longer, but you need to bear in mind that when the new financial year comes you will need to be able to make your current year’s monthly instalments in addition to whatever you offer to pay when your apply for the Time To Pay Order.
The Debt Arrangement Scheme and Council Tax
You can also apply for a Debt Payment Programme under the Debt Arrangement Scheme if you have a Summary Warrant granted against you and are worried a local authority may serve on you a Charge for Payment or execute diligence, or even raise a petition to make you bankrupt.
Once a Debt Payment Programme under the Debt Arrangement Scheme is approved, Sheriff Officers cannot execute diligence or serve a Charge for Payment on you. They also cannot raise a petition to make you bankrupt.
Statutory Moratoriums and Council Tax Arrears
If you require time to consider your options, whether that is to apply for a Time to Pay Order or a Debt Payment Programme under the Debt Arrangement Scheme or even whether you want to consider a form of personal insolvency, such as a Protected Trust Deed or bankruptcy, you can use a Statutory Moratorium to give you breathing space.
Statutory Moratoriums give you six weeks protection (currently extended to 6 months under Emergency Coronavirus Legislation) to allow you to consider your options. You can only use a Statutory Moratorium once in any 12 month period (currently this rule has been suspended under Emergency Coronavirus Legislation).