If you owe tax and can’t pay it, you need to establish a debt management regime to achieve a payment plan that you can manage. If possible, talk to an expert advisor who understands how the system works, knows HMRC’s operating procedures and has substantial experience of advising people in your position. HMRC has an entire section called the Debt Management and Banking department (DMB), and a professional will know exactly how this department works, and how to approach them.
You may be tempted to ask HMRC to freeze the debt while you attempt to pay it off. Unfortunately, they are mandated by law to levy interest on any outstanding sums due. However, don’t despair. In other respects, they are somewhat more flexible. If you haven’t got the money to pay the whole amount demanded, they may allow you to pay in instalments.
HMRC’s Use of Debt Collection Agencies
It all gets slightly more complicated when HMRC decides to employ an agent to collect the debt on its behalf. If this happens, check that the collection agency is genuine by comparing its details to the list on the gov.uk web site. Bear in mind that debt collection agencies employed by HMRC can contact you by post and by phone, but they’re not allowed to pay you a visit.
Once you’re satisfied that the people who have contacted you are authorised to collect the debt, you can ask them to give you time to pay. They have similar powers to HMRC when it comes to agreeing a timetable for repayments. There may be a discrepancy between the total amount of tax you owe and the amount that the debt collection agency wants, because HMRC may have asked the agency to collect part of the debt and not all of it.
HMRC Debt Management (DMB)
If you can’t come to an agreement with the debt collectors on payment, they’ll send your case back again to HMRC. You may find yourself talking to DMB and having to answer a lot of personal questions about your spending to satisfy them that you are making an honest attempt to clear the debt and are not holding back funds to spend on holidays or motoring expenses. DMB often expects this information during the first phone call you have with them. The Debt Management Officer appointed to handle your case will be robust in challenging any expenditure that seems unnecessary. Professional business recovery experts will help you prepare the information you’ll need to have.
But don’t become a serial payment -plan arranger. If you are back time after time, wanting to arrange a schedule of repayments, they may be less and less lenient as time goes by.
Your main objective should be to avoid enforcement action. This costs HMRC money to carry out, so they will try to avoid it if they feel they have a realistic likelihood of collecting the debt due. If they feel that you are “won’t pay” rather than “can’t pay”, they’ll deal with you more stringently. The chief factor in making them think you are refusing to pay will be if you have failed to contact them to explain your problems about paying.
Many people feel so anxious about the situation that they put off talking to HMRC, hoping things will improve. When they don’t, they find themselves in an even tighter corner, feel even more anxious, and put off the phone call day after day. These are very much the people who should be talking to an advisor who can take charge of the situation and start arranging a positive way forward.