How HMRC treats customers who have a tax debt
04 September 2020
Posted by: HMRC
Published 13 August 2020
- Tailored support
- What happens if customers do not engage with HMRC, or refuse to pay
- Our enforcement powers
- How we use debt collection agencies
The vast majority of customers pay their tax in full and on time, helping to fund the UK’s vital public services. Where customers are unable to pay on time, we want to work with them and are always ready to help those who want to settle their affairs. We do not want our customers to worry – we’re here to help and make things as straight forward as possible.
When a customer has a tax debt, we always try to contact them by phone, post or short message service (SMS) text message so that we can talk about their situation and agree a way forward. We urge customers to respond to these communications as soon as possible because, unless we can discuss their situation, we cannot tell if they need support or are simply refusing to pay.
In all cases, we want to work with customers to find a way for them to pay off their tax debt as quickly as possible, and in an affordable way for them.
Everyone is different, so the support we offer varies from customer to customer – we tailor our support to their individual needs.
Where customers are facing difficulty in making a tax payment, they should ask us about affordable payment options. We’ll work with them to try and agree a payment plan – called Time to Pay – based on their financial position.
Any tax, duty, penalties or surcharges can be included in a Time to Pay arrangement. We typically have more than half a million arrangements in place at any one time, and 9 out of 10 of them complete successfully.
There is no standard Time to Pay arrangement. We discuss a customer’s specific financial circumstances, look at what they can afford to pay, and then use that to work out how much time they need. There’s no upper limit on the amount of time that someone can have to pay, but we will look for customers to repay their debt as quickly as possible while maintaining affordable payments.
Extra support for customers
We know that some of our customers need extra support when they have debts. All of our debt management teams are trained to identify customers who might need extra help managing their affairs.
A customer can nominate a professional tax agent, a friend or a family member to deal with their tax affairs on their behalf.
We review our internal guidance regularly, to help our advisers to support customers in debt. HMRC also works with organisations such as Mind and the Alzheimer’s Society to help our advisers to identify and support customers who have mental health issues or who are demonstrating emotional distress.
We are here to support customers with their HMRC debt but understand sometimes customers will have debt to other creditors too. Where an individual or business is struggling to pay HMRC and other creditors, they should consider seeking independent debt advice.
The Money Advice Service can give more information about where to get free debt advice.
HMRC work with debt advice services to improve our processes and make sure our support is easily accessible. For example, if a customer works through a Standard Financial Statement from a debt advice provider, we can use that to assess how much they can afford to pay in when negotiating a Time to Pay arrangement.
What happens if customers do not engage with HMRC, or refuse to pay
We can only support customers who want to work with us. Where customers do not respond to our communications, or refuse to pay, HMRC has debt enforcement powers to help us collect outstanding tax. These powers come with the responsibility to use them carefully and fairly. We take that responsibility very seriously, and we only use our enforcement powers as a last resort.
If we do not receive a response from customers to our letters, phone calls or SMS text messages, we try to visit them at their home or business address, to try and work with them to settle their outstanding tax. Contacting customers in this way helps us understand their individual circumstances – for instance, if they are vulnerable and in need of extra support and we had not already been made aware of this, in which case we’ll refer them to a specialist team.
During our visit to the customer, we’ll ask about their financial situation and ability to pay. We’ll look to agree how best to settle the debt, which might be in full or through instalments in a payment plan.
In more than 80% of cases, these visits result in an agreement. But in the minority of cases where we’re unable to reach an agreement, or where customers are unwilling to engage in finding a way forward, we start the process of collecting the debt using our enforcement powers.
Our enforcement powers
HMRC has a range of enforcement powers, which can vary by country across the UK.
We choose which powers are appropriate and proportionate on a case-by-case basis, according to customers’ specific circumstances – so the following list of our enforcement powers is set out in no particular order.
Taking possessions to cover the debt (England, Wales and Northern Ireland)
‘Taking Control of Goods’ regulations in England and Wales, and ‘Distraint’ in Northern Ireland provide a basis on which creditors like HMRC, or those acting on a creditor’s behalf, can remove and sell assets to cover debts.
In England and Wales, this will start by HMRC issuing a formal Notice of Enforcement, which has a flat fee of £75. We will always warn customers and offer them an opportunity to pay before removing any of their possessions. An HMRC officer will visit the customer (not before 6am or after 9pm) and ask them to pay their debt. If they do not pay, the officer will list possessions and agree with the customer what might be sold to cover both the debt and the sale costs – for example, fees for auctioneers or advertising.
These possessions will either be taken from the customer’s premises or left to be taken at a later date under the ‘Controlled Goods Agreement’ (England and Wales) or ‘Walking Possession’ (Northern Ireland).
These possessions can then be sold after a written notice period of 7 days, if the customer has not paid their debt in full by then or started a payment plan. In exceptional circumstances, we might issue a shorter notice period of 24 hours, for instance where goods will deteriorate quickly, become unsaleable or reduce substantially in value.
If the possessions sell for more than the debt, the customer will be paid the difference after the deduction of costs and fees. If they sell for less than the debt, the customer will have to pay the difference, and we will continue enforcement action until the debt is settled.
While the possessions can only be listed by an HMRC officer, the items listed may be collected by HMRC officers, auctioneers or collection officers appointed by a court. When items have reached the point of sale (and only then), these parties will be allowed to use a locksmith if necessary to enter premises, without the need for a warrant from the courts or prior notice to the customer.
The following additional fees will apply, to also be covered by the sale of the customer’s possessions.
England and Wales
For taking control of goods there is a fee of £235, plus 7.5% of the proportion of the main debt over £1,500.
For goods taken and sold at auction there is a fee of £110, plus 7.5% of the proportion of the main debt over £1,500.
For customers owing:
- less than £100 there is a fee of £12.50
- more than £100 there is a fee of between 0.25% and 12.5%, depending on the debt amount
For goods taken and sold at auction there is a fee of between 7.5% and 15%, depending on the auction.
We will never take your possessions that are essential for your security, wellbeing, or the running of a viable business.
There are specific guidelines on which possessions may be taken. At all times, we will act in accordance with the Taking Control of Goods Regulations 2013 (in England and Wales) and Distraint action (in Northern Ireland).
Using a ‘Summary Warrant’ to recover the debt (Scotland)
In Scotland, we are authorised under Section 128 of the Finance Act 2008 to apply to a Sheriff Court to obtain a Summary Warrant in respect of a debtor’s debt. A Summary Warrant is a type of court order which is granted for debts.
Where a Summary Warrant is granted, we will instruct a court-appointed official (Sheriff Officer), to serve a charge for payment on our customer owing tax. The customer then has 14 days to pay their outstanding debt or agree a payment plan to pay the tax owed in instalments.
If the debt remains unpaid after the 14 days, then HMRC may instruct the Sheriff Officer to carry out the most appropriate ‘diligence’ action, which is determined by HMRC. HMRC will consider using any, or all, of the following ‘diligence’ actions to avoid proceeding to insolvency:
- recovering debt from a bank account (Bank Arrestment)
- recovering the debt through earnings (Earnings Arrestment)
- seizing and selling goods (Attachment)
- recovering cash, like money from a till in a shop (Money Attachment)
Customers have a right to appeal the debt with the creditor before the Summary Warrant is obtained.
Recovering the debt directly from customers’ bank accounts
Creditors like HMRC, or those acting on a creditor’s behalf, can recover debts directly from customers’ bank and building society accounts.
For HMRC, this can apply to customers in England, Wales and Northern Ireland who owe £1,000 or more, and have enough funds in their bank accounts to cover both the debt and reasonable living costs. It’s called ‘Direct Recovery of Debt’.
There are stringent safeguards to ensure that customers do not suffer undue hardship from money taken directly from their accounts, and that adequate protection is in place for vulnerable customers. These are detailed in an HMRC briefing on Direct Recovery of Debt.
In Scotland, arrestment of a customer’s bank account is via Summary Warrant following failure to pay after a charge for payment.
Recovering the debt through County Court proceedings, property and pensions
All creditors, or those acting on their behalf, can use County Court processes where customers owing tax have refused to pay, despite having assets to cover the debt. This is covered under Summary Warrant in Scotland.
There are a range of options. In HMRC, we consider carefully which are appropriate and proportionate on a case-by-case basis, according to customers’ specific circumstances.
A charging order is an order of the court, preventing a debtor from selling specified assets without first paying the judgement debt out of any proceeds. The most common asset subjected to charging orders in the UK is land or property, however, charging orders can also be placed on other assets. These include financial products such as securities, stocks and shares, trusts, personal equity plans and ISAs.
Charging orders give creditors like HMRC the power to recover debts from the sale of a property, either when the customer who owns the property sells it, or through a court action known as an order for sale to force the customer to sell.
Despite holding these powers, we do all we can to avoid forcing customers owing tax to sell their primary residence. To date, HMRC has only forced the sale of customers’ residences where they had multiple properties or were involved in criminal activity. No customer will be forced to sell their main home to fund a Loan Charge or Disguised Remuneration tax bill.
Where a customer is petitioned for insolvency, the court can then grant an order which directs the Insolvency Service to appoint a trustee or liquidator to liquidate assets, which may include a customer’s primary residence. There are safeguards in place as these proceedings go through the courts.
Where any creditor seeks recovery of debt through property charging orders and orders for sale, it’s entirely the court’s decision whether to grant the order. In Northern Ireland, a Charging Order over land or property may be obtained through a civil court process by the Enforcement Judgement Office. In Scotland, Property Charging Orders do not apply.
There are also occasions where we might ask customers to consider drawing equity from their property in order to settle their debt quickly and avoid interest or shorten a Time to Pay arrangement.
For some wealthy customers who have significant equity in property or properties that exceed their needs, we may ask them to release equity to clear the debt or reduce the amount of time they need to repay. If they do not, we may proceed with insolvency action.
Attachment of Earnings
Where a customer in debt is in PAYE employment, the County Court can grant any creditor, including HMRC, an ‘Attachment of Earnings Order’.
These orders allow for regular deductions to be taken from the customer’s wages to repay the debt, subject to safeguards to ensure that the customer has enough remaining in their pay packets to cover essential expenses. This is called an ‘Arrestment of Earnings’ in Scotland.
Third Party Debt Orders
Where a customer in debt is owed money from a third party, a creditor can apply for a Third Party Debt Order. These orders allow for creditors to take direct payment from the third party.
Third Party Debt Orders are only applicable in England and Wales, although similar actions are available under Distraint in Northern Ireland, and Summary Warrant in Scotland, known as ‘Arrestment’.
We consider pension payments as income, including any lump sums on retirement. We will therefore consider pension payments in our assessments of customers’ ability to pay a debt.
However, we will not ask customers to draw on funds from their pension pots to repay their debt to HMRC.
HMRC only petitions for insolvency as a last resort after considering all alternative routes to recovery. It usually applies only where a customer’s debt position is deemed to be non-recoverable, where they have actively gone out of their way to avoid paying what they owe, or we suspect they are manipulating their asset position.
Of all insolvency proceedings that go ahead, only around 10% of them are petitioned by HMRC. In the 2019 to 2020 tax year HMRC petitioned for insolvency in 5,604 cases, which is 0.09% of the total 6.5 million debt cases we handled in that year. Of those cases, around half of them resulted in bankruptcy, sequestration or winding-up orders.
When taking insolvency proceedings, whether they are against individuals, partnerships or companies, HMRC is no different from any other creditor and is strictly bound by the requirements of Insolvency law.
The insolvency processes HMRC are involved in include, but are not limited to:
For companies, a Company Voluntary Arrangement (CVA) will require a licensed insolvency practitioner to put forward a proposal to creditors. The company directors will review the company’s past history and future trading prospects with the insolvency practitioner. If all parties are satisfied that there is a viable way forward for the company, a proposal explaining how its debts are to be dealt with can be considered by its creditors.
For individuals in England, Wales and in Northern Ireland, an Individual Voluntary Arrangement (IVA) can be proposed on an individual debtor’s behalf by an insolvency practitioner, where they will need to submit information about their total debt position, as well as income and expenditure details to work out an appropriate payment plan.
In Scotland, a debtor may choose to sign a trust deed whereby regular payments are made to an insolvency practitioner to distribute to creditors.
Where HMRC is a creditor, we are invited to vote in favour, against or abstain on a CVA or IVA proposal. In making our decision, we consider the paying of the debt and also assess customers’ likely ability to pay future taxes. As part of this, we will seek assurances from the party proposing the arrangement that steps have been taken to remedy whatever went wrong, so we can have confidence that supporting the voluntary arrangement will not put future tax at risk.
In considering IVA or CVA proposals, we always look to support customers who are experiencing temporary financial difficulties. We look positively at proposals where a customer’s circumstances are explained fully and honestly, and where the offer being made is both achievable and is the best outcome for the country’s vital tax revenues.
For all forms of voluntary arrangement, no creditor is able to press for payment of debt that is included in the arrangement until it is agreed. If the arrangement fails, creditors regain the right to pursue the outstanding debt.
Company moratorium using the new Corporate Insolvency and Governance Act
Where a company, registered in the UK, is in financial difficulty and has applied for a moratorium, it will be given breathing space to restructure their finances.
HMRC, along with other creditors, will stop recovery activity for a period of 20 business days, extendable to 40 business days, or a maximum of a year where granted by the court.
HMRC will supply the details of the company debts to an Insolvency Practitioner ‘the Monitor’ appointed to oversee the moratorium. HMRC will be entitled to vote on any restructuring plan, if the company proposes this to their creditors.
The moratorium will be reviewed by HMRC to ensure the company is meeting the conditions of the moratorium and remains capable of recovery with a view to meeting its obligations to creditors.
Insolvency - bankruptcy and winding up orders
A bankruptcy or winding up order may be granted either because a creditor has petitioned for insolvency to the court, or an individual has applied for their own bankruptcy. In some cases, a licensed Insolvency Practitioner (IP) may then be appointed. In the case of an individual debtor the IP appointed is known as the trustee. Where the debtor is a company the IP is known as the liquidator.
The trustee’s or liquidator’s statutory duty is to realise a debtor’s assets and distribute them to the creditors. HMRC does not control or direct the IP’s actions – any action taken is a matter for them, in accordance with their statutory duties.
How we use debt collection agencies
HMRC uses debt collection agencies where we need extra capacity for desk-based recovery activity only, such as phoning customers, issuing letters and SMS text messages, and agreeing time to pay arrangements. They work on less than 5% of HMRC debts each year.
These debt collection agencies are office-based only. HMRC does not use private sector ‘bailiffs’ to recover debts, so they will never visit customers face to face at their home or place of work on HMRC’s behalf.
The debt collection agencies we work with are regulated by the Financial Conduct Authority and bound strictly by our processes and guidance. We undertake regular reviews, for instance listening to their calls and looking at their messages, to make sure they follow our strict processes and guidance to the letter.