Practical advice for managing HMRC tax debts: negotiating payment plans, avoiding enforcement action, and understanding your options for resolving outstanding liabilities.

What to Do When Contacted by HMRC Debt Management

Receiving a letter or phone call from HMRC’s Debt Management team can be stressful, but it’s crucial to respond promptly and constructively. In my experience, ignoring HMRC’s attempts to contact you will only exacerbate the situation.

When HMRC Debt Management reaches out, its primary goal is to open a dialogue and work with you to resolve the outstanding tax debt in a manageable way. They understand that a range of circumstances can lead to tax arrears, and they’re generally willing to consider a plan that takes your specific situation into account.

Make Sure You Have All Your Documents to Hand

Your first step should be to gather all relevant information, including the amount owed, the tax periods in question, and any previous correspondence with HMRC. Having a clear picture of your situation will help you communicate effectively with the Debt Management team[1]Trusted Source – GOV.UK – If you cannot pay your tax bill on time.

If you’re unsure about any aspect of your tax debt or how to proceed, seeking professional advice at this stage can be invaluable.

HMRC Debt Management - Contacting HMRC About Tax Debts

Resolving HMRC Tax Debts: Options and Strategies

When you’re dealing with tax debt, it’s important to remember that you have options.

One of the most common solutions is a Time to Pay arrangement. This is essentially an instalment plan that allows you to spread your tax payments over a longer period, usually up to 12 months.

In some cases, it may be possible to arrange a short-term deferral of your tax payments. This can provide some breathing space if you’re expecting your financial situation to improve in the near future, for example, if you have a large invoice due to be paid.

Get Advice Early

If you’re experiencing more severe financial difficulties, such as insolvency, it’s critical to seek professional advice promptly. An insolvency practitioner like ourselves can help you explore options like a Company Voluntary Arrangement (CVA) or an Individual Voluntary Arrangement (IVA), which could allow you to reach a formal agreement with HMRC and other creditors.

Negotiating a Payment Plan with HMRC

If you’re unable to pay your tax debt in full, negotiating a payment plan with HMRC Debt Management can be a viable solution[2]Trusted Source – GOV.UK – Setting up a payment plan. The key is to be proactive, realistic, and honest in your approach.

Before contacting HMRC, take the time to assess your financial situation thoroughly. Calculate your monthly income and expenditures and determine how much you can realistically afford to pay towards your tax debt each month.

When you’re ready, reach out to HMRC Debt Management to discuss your proposal. Be prepared to provide evidence of your financial situation, such as bank statements, payslips, and a breakdown of your monthly expenses.

In my experience, HMRC is generally receptive to payment plans that demonstrate a genuine commitment to resolving the debt.

Consequences of Ignoring HMRC Debt Management

While it can be tempting to put your head in the sand when faced with tax debt, ignoring correspondence from HMRC Debt Management is never advisable. Failing to engage with the issue can lead to a range of serious consequences[3]Trusted Source – GOV.UK – If you do not contact HMRC or refuse to pay.

Firstly, HMRC will continue to add interest to your outstanding debt, which can quickly inflate the amount you owe. They may also charge late payment penalties.

If you persistently fail to respond to HMRC’s attempts to contact you, they will escalate their enforcement action. One common step is to issue a ‘distraint warrant‘, which allows HMRC officers to visit your home or business premises to seize goods and assets to the value of your tax debt. They can take items such as vehicles, machinery, or stock, which can be devastating for businesses.

Enforcement & Winding up Action

In more serious cases, HMRC can pursue enforcement through the courts. They can apply for a County Court Judgment (CCJ) against your business, which can severely impact your credit rating and make it difficult to obtain loans or other financial services in the future. If you fail to comply with a CCJ, HMRC can then escalate to enforcement action, such as sending bailiffs to seize your assets.

For businesses, ignoring tax debts can lead to HMRC initiating winding-up proceedings. This is where they petition the court to force your company into compulsory liquidation to recover the outstanding debt. This process can be catastrophic, leading to the complete closure of your business and the sale of all its assets.

The clear message here is that ignoring HMRC Debt Management is never the right solution.

Seeking Professional Help with HMRC Debt Management

Dealing with tax debt can be a complex and stressful process, and there may come a point where you need to seek professional assistance. This is particularly true if you’re dealing with a large debt or complex tax affairs or if you’re facing serious enforcement action from HMRC.

One of the first ports of call should be a qualified tax adviser or accountant. They can help you understand your tax position, identify any areas where you may be able to reduce your debt (such as through unclaimed expenses or reliefs), and advise you on the best approach for dealing with HMRC. Many tax professionals have extensive experience negotiating with HMRC Debt Management.

If Your Business is Struggling, Consulting an Insolvency Practitioner Can be Invaluable

If your tax debt is part of a broader financial problem, you may also need to consider seeking advice from an insolvency practitioner such as ourselves. We can help you assess your overall financial situation and advise on potential solutions, such as a Company Voluntary Arrangement (CVA) or even liquidation.

When choosing a professional to assist you, it’s important to ensure they are properly qualified and regulated. Look for tax advisers who are members of recognised professional bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW), the Association of Chartered Certified Accountants (ACCA), or the Chartered Institute of Taxation (CIOT). Insolvency practitioners should be licensed by a professional body such as the Insolvency Practitioners Association (IPA).

HMRC Debt Management’s Powers to Recover Debts

When dealing with tax debt, it’s important to understand the extensive powers that HMRC Debt Management has at its disposal to recover outstanding amounts.

One of HMRC’s most common enforcement tools is the “distraint” or “control of goods” procedure. This allows them to seize your goods and assets and sell them at auction to settle your tax debt.

Direct Recovery of Debt

HMRC can also recover debts directly from your earnings or pension through a “direct earning attachment” or “direct recovery of debt”. This allows them to request that your employer or pension provider deduct a specified amount from your income and pay it directly to HMRC.

For businesses, HMRC has the power to initiate insolvency proceedings. They can issue a “statutory demand” for payment, and if this is not complied with, they can petition the court to wind up your company. This is a very serious action that can lead to the complete closure of your business.

HMRC Debt Management Support at Company Debt

If you’re struggling with HMRC Debt Management issues, remember that you’re not alone. At Company Debt, we have extensive experience helping directors navigate these challenging situations.

Our team of experts can provide confidential, tailored advice on the best way forward for your specific circumstances. We’ve assisted thousands of directors in dealing with HMRC debts, negotiating payment plans, and avoiding serious enforcement action.

If you need guidance, support, or just a friendly ear, we’re here to help. Use our live chat service during working hours or call us directly on 0800 074 6757 to discuss your situation and start taking positive steps towards resolving your HMRC debt today.

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – If you cannot pay your tax bill on time
  2. Trusted Source – GOV.UK – Setting up a payment plan
  3. Trusted Source – GOV.UK – If you do not contact HMRC or refuse to pay