Handling Tax Debt for Money Advisers

1
Revenue Debts and Overpayments
2
Understanding Tax Debt

• Objectives
• HM Revenue and Customs structure
• Powers and policies
• Tax debt options - Negotiating with HMRC
• Dealing with interest, penalties and surcharges

3
Overview

• HMRC debt
• Direct Taxes Income tax and National Insurance,
  Corporation tax, Capital Taxes
• Indirect Tax Valued Added Tax
• Tax Credit Overpayments

4
Who are HM Revenue and Customs?

• Formed on the merger of HM Customs and Excise and
  the Inland Revenue in April 2005
• Service Offices process tax returns and agree
  tax liabilities
• Debt Management and Banking Service collection
  and enforcement

5
Payment of Tax Legal Obligations

• The majority of taxpayers pay their tax on time
• HMRC have a legal obligation to see that those
  who have not paid their tax pay it where possible
• Not like other creditors who budget for bad debts
  and can choose their client base
• Recovery is policy driven

6
Policies and Powers

• Policy see website manuals
• http//www.hmrc.gov.uk/manuals/index.htm
• Debt Management and Banking Manual
• Time to pay standard limits
• Bankruptcy and IVAs
• Can enforce estimated debts
• Distraint without court authority

7
HMRC Powers - Determinations

• Without the information from a tax return, HM
  Revenue and Customs will decide on a figure for
  income and tax due.
• This is legally enforceable, even to bankruptcy
• There is no right of appeal. The taxpayer must
  submit a return to displace the HMRC figure
• The Service Office deals with determinations
  Debt Management Office simply collects the money
  shown

8
Negotiating with HMRC

• Different offices different level of authority
• Challenge the tax bill with a Service Office
• Manage recovery options with Debt Management
  Office
• The Courts will not discuss the amount due but
  may sometimes give longer to pay

9
Debt Management and Banking

• Accounting and Payments Services
• Local Debt Management Offices
• Enforcement and Insolvency Service Worthing,
  Edinburgh Belfast

10
Accounting and Payments Service

• Payment of tax on time - banking and accounting
• Debt Management Telephone Centre
• Time to pay considered on the basis of income and
  expenditure schedule so have details ready

11
Debt Management Office

• Tax not paid on time?
• Debt is transferred to local Debt Management
  office for collection

• Local Debt Management Office can
• Agree instalments
• Levy Distraint
• Apply for Magistrates Order for Payment
• Apply for County Court Judgement
• Send to Enforcement Insolvency Service Office
  Worthing (debts over 2,000)
• Consider remission in exceptional circumstances

12
Enforcement and Insolvency Office (Worthing)

• Bankruptcy
• Instalments
• Charge on property
• Consolidated Offer
• Remission if not dealt with at local level
• Equitable liability

13
Tax Debt Options Negotiating with HMRC

• The true debt
• Time to Pay - Cant Pay or Wont Pay?
• Sudden serious illness
• Long-term ill health, no assets, little income
• Neglect and self-employed
• Employees
• Older debts over 5 years

14
The true debt

• Determinations
• Payments on account
• Errors and mistakes
• Tax paid at source
• PAYE tax debts
• Are there outstanding tax returns?

15
Negotiating with HMRC Paying by instalments

• Cant pay or Wont pay?
• Facts of the case
• Statement of means - household
• Future changes
• Priorities
• Time required and continuing liability
• Completion of returns

16
Time to Pay

• Time limits (policy)
• 36 months maximum
• 12 months for PAYE / Capital Gains Tax
• No agreement?
• Distraint
• Magistrates Court
• County Court
• Bankruptcy
• It is usually never too late to talk

17
Illness

• Sudden, serious illness
• Recovery action should be suspended
• Underlying debt may still be incorrect
• Revisit the case in 3 to 6 months
• Other illness
• Review the facts
• Assets
• Age
• Long-term outlook

18
Remission Putting the Debt on Ice

• Not widely given
• Agreement to not collect debt rather than writing
  off
• Each case looked at individually
• Taxpayer has no assets
• Normally ill, elderly, or on benefits for the
  long-term
• Debt can spring back to life if circumstances
  improve

19
Neglect the Self-employed

• Depression, ill health, relationship breakdown
  or business failure
• Debt incorrect?
• Negotiate with the Service Office
• File tax returns
• Payments on account
• Debt correct?
• Negotiate with Debt Management Office
• Time to pay
• Other options charges on assets, consolidated
  offers, remission

20
Employees - PAYE tax debts

• Multiple jobs, pensions, or taxable benefits
  giving coding errors
• Correct by spreading forward or direct bill
• Possible remedy - Extra Statutory Concession A19
• HMRC delay and error
• Taxpayer must believe that their tax was correct

21
Older debts

• Tax assessments become final 5 years and 10
  months after the end of the tax year
• 2000/01 Year to 5 April 2001 Normal filing 31
  January 2002 Final on 31 January 2007
• Equitable liability is the only way to change
  older debts

22
Dealing with interest, penalties and surcharges

• Late filing penalties
• Daily penalties
• Enquiry penalties
• Interest on overdue tax
• Surcharges for late payment
• Often affected by the amount of tax due
• reduce the tax reduce the interest and other
  charges

23
Penalties, Interest and Surcharges

• 100 penalty for late filing
• cannot exceed tax due
• if liability is reduced to nil, penalty will be
  reduced to nil
• if tax reduced to 50 then penalties will also be
  reduced to 50.
• Interest is currently charged at 8.5 (and is not
  negotiable)
• If tax liabilities are reduced, interest and
  surcharges will also be reduced.

24
Penalties, Interest and Surcharges

• 5 surcharges
• imposed if the final payment of tax due on 31
  January remains unpaid 28 days later
• further 5 imposed on outstanding balance after 6
  months -31 July
• Make time to pay arrangements before surcharges
  are due
• HMRC will not charge surcharges provided
  agreement honoured
• Surcharge dates for 2005/06 tax liabilities
• 1 March 2007 and 31 July 2007

25
Penalties, Interest and Surcharges

• Daily Penalties - charged if returns not
  submitted after reminders and warning
• Up to 60 per day/per return
• Once charged, they are not reduced on submission
  of return
• Not refundable or available to re-allocate
• Usually applied for 14 days initially
• With 3 years outstanding this is a bill of
  2,520!

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www.taxaid.org.uk advisers line 020 7803
4950 info_at_taxaid.org.uk