How "friendly" are HMRC when it comes to settling tax-debts in installments

judywoody

Ok, I have been really anxious over the last week. I did my tax return for 2010/2011 - I have only been properly self-employed for a short time so did some mis-calculations and will end up having to pay more tax and NIC 4 than expected. On top of that I was unable to make a great deal of pre-payments as my husband lost his job and we had to scrape the bottom of the barrel for a few month. So I was only able to prepay about 470£. But the tax bill is just over £2000!!! This will be due in January. On top of that they charged me a "payment on account" of 1000 £ for the first time - I didn't even know what that was until I googled it!! I applied for a reduction of this as I won't be earning as much as last year.
Also, I will probably lose my freelance job - which makes it even harder for me to pay this asap. Even if I didn't lose my job I would have to ask HMRC whether I would be allowed to settle this in installments until August.

Now I read up on how to settle your tax-debts and I am a bit confused. It seems as if HMRC are less friendly than private businesses when it comes to asking them to pay in installments. It won't be hard for me to prove that we hardly earn anything (my husband earns 600£ and by the looks of it, if I don't get a better paid job will end up earning the same - we both work part-time due to health restrictions).

But this site: http://taxaid.org.uk/guides/tax-debt/time

seems to indicate that they can be quite nasty if you need time to pay - they rather want you to declare bankruptcy and not ever receive a penny than waiting 2 years for you to pay your debt off.

On the other hand some bits of this site seem to indicate that they are quite forthcoming as long as you stay in touch and do your best to settle the debt. Not sure what I should believe? Has anyone got experience with paying tax debt in installements and can give me advice?

chrismac1

The Time To Pay Scheme was very good when it first came in, less so now that HMRC see small businesses as a key target area to reduce the National Debt. If you explain the situation and make a firm proposal as to how quickly you can pay it all off, i'd hope you'd get a favourable response. Make sure you stick to whatever you agree to, my clients' experience is they get very nasty if you don't. I would not worry too much about threats of bankruptcy we are a long way off that. And more than one Tribunal has ruled that, for example, suggestions by HMRC staff that taxpayers should borrow on credit cards to pay tax bills immediately are completely unacceptable.

judywoody

Wow, I just rang HMRC and they seem to be quite firm on this. Keep in mind that I rang 5 month before the bill is actually due. I asked what would happen in the worst case scenario - Let's say I would lose my work and would only be able to pay 50 £ a month - she said that's nearly impossible that they would agree to that as it would take me way longer to pay it off than 12 month and 12 month can only be granted in extreme cases (I don't know what could be extremer than losing your job!?!)...never mind longer than that.

I feel a bit uneasy about the fact that they are so unreasonable - every private business grants you more time then they do. I said I will try my best and hope to pay 600 £ monthly from October onwards so I will pay off everything inc the tax that I should be owing for this year by the end of January. But I can only hope that I will get enough work to do this...I feel like crying already!!

notatvstar

OK... I'm just about to submit my tax return online and for the year 10-11 my 'freelance' earnings mean I should be paying about 2500 tax (with NI, class 4). No-one's yet asked me to pay payments on account but I'm anticipating they will.

Anyhow... cutting and pasting from the HMRC website.

Deadlines for paying your tax

31 January

You must pay any tax you owe by 31 January following the end of the tax year.
For example, for the tax year 2010-11 (ending on 5 April 2011) you must pay any tax you owe by 31 January 2012.
The payment deadline is the same for both paper and online returns.
You'll need to pay one or both of the following:

• any tax you still owe for the previous tax year
• the first of two 'payments on account'

Payments on account are part payments towards your next tax bill. HMRC won't always require you to pay these - it'll depend on the amount of tax due and the kind of income you receive.
HMRC will usually send you a 'Self Assessment Statement' that shows how much you owe. If you don't receive this, you'll need to work out the tax due yourself. You can use your tax calculation and previous statements or log in to HMRC Online Services and use the 'View Account' option.

...so... (I've coloured in the salient point in red)

In other words, you won't have to pay the FULL £1000 payment on account in Jan. You will have until 31st of July. So you can pay 500 quid in Jan, then pay a second installment later.

again cutting and pasting from the HMRC webite

31 July

This is your deadline for making any further payments on account if HMRC have asked you to.
For example on 31 July 2011, you'd make your second payment on account for the 2010-11 tax year.


... I know that's not going to help with the 2 grand tax bill, but at least you know you've got another 7 months to come up with the second half of £500.


Unless I've got this completely wrong, as if I have... I'm screwed. :eek::eek::eek:



Someone please confirm that I'm right or plain wrong.

nikki1520

Sorry, you have got it a bit mixed up. Generally, if your tax is more than£1000 or so, they ask you to then pay about half of the next years bill in July- based on their calculation, not yours. Then the remainder is due in the following January.

So, imagine first year trading in2009-10 gives a liability of £2500. This is due by 31 January 2011.

Assume that hmrc think the amount will be the same the following year £1250 due by the 31st of July and the remainder by 31 January 2012

It's a very simplistic view of a complicated system, but I think it's reasonably representative

chrismac1

Once you submit a 2010-11 tax return with a 2,500 bill, the system will programme in payments of:

1. 3,750 on 31 Jan 2012 - 2,500 for 10-11 and 1,250 towards 11-12.
2. 1,250 on 31 July 2012 - second instalment for 11-12.
3. The final adjustment to 11-12 will take place when you submit the return and the exact tax is known.

However, very few self-employed taxpayers are "steady state" - I have a lot of clients with businesses suffering from the recession, and a few more fortunate ones growing aggressively. I have a column on my tax return workings sheet for "11-12 forecast" where we come up with our best estimate of earnings, deductions and therefore tax for 11-12. Where these are much different from 10-11, in the "Payments on account" box on the 10-11 tax return I enter my calculated payments on account to the nearest £100 for 11-12.

In some cases - for example a builder client in the process of retiring - the estimate is Nil. Note that putting in a Nil estimate where you expect to have tax to pay is not a great idea unless cash flow is really desperate as you can expect HMRC to take some unwelcome interest in your affairs once the final return goes in.

notatvstar

... !!!!.

beans on toast until Feb methinks!

Cheers - at least I know now rather than later.

Many thanks to all.

judywoody

Thanks for that.

I know how it works and why I have to pay payment on account. I reducecd this because I know I will be earning less.

However, I was hoping for some personal experience with the HMRC. With a lot of luck I will be able to pay 600£ monthly until Feb but if push comes to shove an I'll lose my main income source I will not only have to live on beans on toast :-)

It seems the HMRC are quite rigid and harsh - no matter what. So even if you lose your job they won't be happy for you to pay 50£ for the next 3 years. Unless it goes to court and they are usually more flexible. But I don't want it to go that far. I don't undertstand why the HMRC can be so unfair if you show that you are willing to pay and even get in touch before the payment is due and try to resolve it? So I was wondering if anyone had any personal experience with them? Or am I the only stupid person who didn't make enough pre-payments??

BoGoF

What is harsh, you earned the money now pay the tax. I'm sure those of us on PAYE would like to pay our tax 9 months after we earn it but we don't get that choice.

judywoody

BoGoF wrote: »

What is harsh, you earned the money now pay the tax. I'm sure those of us on PAYE would like to pay our tax 9 months after we earn it but we don't get that choice.

I've paid my tax on PAYE for long enough - and I prefer that way of paying my tax, believe me.

But you get your money every month and you know exactly what you get. When you're self-employed things can go pear-shaped and sometimes it's just not possible to put aside enough money - even without living beyond your means.

What's harsh about that? Well, if people honestly try to sort it out and the HMRC would rather see you bankrupt than paying the debt off bit by bit and earn money on interest...that's not only harsh that's just downright stupid. They also know that the court will more than likely grant you more flexibility so in the end they will have to agree to that settlement anyway. On top of that they spent an awful lot of money on court and admin costs and maybe even on making you declare bankruptcy.

Of course I earned the money and now have to pay my tax - I don't disagree with that. Otherwise I wouldn't bother getting in touch with the HMRC let alone declare my real income. So please - if you make a comment try and say something useful. If you can't say more than your (unreasonable and of common sense lacking) opinion, just don't say anything.

notatvstar

Sometimes life doesn't work out the way we think it would. I had more than enough to pay my tax (at least 3 times over!), but two family bereavements and a family bailout scenario has wiped me out somewhat. It's going to be harsh, but at least I'm not losing my job (... sorry to hear about that judywoody) and as much as this issue is cut-and-dry (i.e. yes - the money has been earned, so the tax must be paid) surely there's some room in people for a little bit of sympathy (not for me, for judy). I think constructive ADVICE about negotiating with HMRC instead of a 'awwwwww poor you' was what the OP was after.

My dealings with the HMRC have always been rather decent! perhaps I've been lucky (... runs off to touch wood), and I'm surprised that they're not willing to negotiate.

Judy - have you gone to a tax advisory office or even a CAB who does tax issues to ask for advice. I think there's some charities as well that may be able to help such as Taxaid.

I wish you the best of luck. Apologies for the 'beans on toast' quip. I didn't mean to make light of your s(h)ituation.