HMRC have recently published guidance on how they deal with people who do not pay the tax that is owed. This includes how and when debt enforcement powers are used.
Where taxpayers are unable to pay what they owe in full, and on time, HMRC can offer support to settle debts as quickly as possible and in a manner that is affordable.
This support varies based on the taxpayer’s individual needs and circumstances, but may include:
- Agreeing a Time to Pay arrangement (a payment plan).
- Offsetting previously overpaid tax against debts.
- Adjusting PAYE tax codes to collect debts.
Communicating with HMRC is key. Where taxpayers who owe tax do not engage with HMRC, an officer may visit the taxpayer’s home or business address to try to agree on how best the debt can be settled.
Where an agreement cannot be reached, HMRC may use their enforcement powers to collect the debt.
HMRC’s enforcement powers are used as a last resort to collect outstanding taxes. Typically this is where contact cannot be made or the taxpayer refuses to pay what is owed.
Powers available to HMRC include:
- Taking possessions to cover the debt.
- The opportunity to pay the amount owed will be given before possessions are removed.
- Possessions essential for security and wellbeing will not be taken.
- Additional charges will be levied, such as £75 for a Notice of Enforcement (in England and Wales), auction fees and fees for taking control of possessions.
- Using a Summary Warrant to recover the debt (Scotland only).
- This is a type of court order which is granted for debts.
- Fourteen days will be given to pay or agree on a payment plan before alternative actions are taken.
- Alternative actions include recovering the debt from a bank account, seizing and selling possessions or recovering the debt through earnings.
- Recovering the debt directly from the taxpayer’s bank account.
- HMRC's Direct recovery of debt powers in England, Wales and Northern Ireland can be used where a debt is £1,000 or more and there are sufficient funds in the taxpayer's bank account to cover the debt and reasonable living costs.
- Charging orders.
- These are court orders which prevent the sale of specified assets such as land, property, stocks and shares, without first paying what the court has ordered must be paid out of any proceeds.
- Court action known as an ‘order for sale’, can force the taxpayer to sell the property.
- Attachment of earnings orders (or arrestment of earnings).
- These allow deductions to be made from wages subject to PAYE.
- Third-party debt orders.
- These allow third-party debts owed to the taxpayer to be collected directly by HMRC.
- As a final course of action, HMRC may start insolvency proceedings. These include:
- Voluntary arrangements.
- Company moratoriums using the Corporate Insolvency and Governance Act.
- Bankruptcy and winding-up orders.
Due to the different legal frameworks applying in England and Wales, Scotland and Northern Ireland, different processes and terminology may apply.
HMRC use a number of debt collection agencies. These are listed in the new guidance.
Useful guides on this topic
Tax debts and insolvency
This guide looks at the treatment of tax debts to HMRC in insolvency cases.
Collecting tax debts via PAYE
When can HMRC collect tax debts via PAYE? What are the limits?
Direct recovery of debts (enforcement by deduction from accounts)
When can HMRC recover debts directly from persistent non-payers?
Time to Pay agreement
Business and self-employed taxpayers with outstanding tax liabilities may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.
HMRC guidance: What will happen if you do not pay your tax bill