Every individual in the UK must pay Income Tax if their income exceeds a certain amount, however the way this is paid varies depending on their working status. If you are employed then you will pay yours directly through your employer via Pay as You Earn or PAYE. If you have your own business then you are required to submit a Self-Assessment tax form on 31st January following the end of the tax year which will determine how much tax you should pay.  The tax year runs from 6th April – 5th April.

For those of you that are employed and pay your tax via PAYE, it is deducted straight from your salary.  You will receive your tax code through the post each year and you are responsible for ensuring it is correct.  The tax code tells you how much you can earn before you start paying tax.   However, mistakes do happen and some may find that they have been underpaying tax. When this happens, as long as the debt is below £3,000, then HMRC can change your tax code in order to collect the underpayment without you having to do anything.

If you are self-employed you must submit a Self-Assessment tax form each year. This form must be submitted to HMRC by 31st January following the end of the tax year and is usually submitted online.   Once you have submitted your self-assessment, HMRC will inform you how much tax you owe for that financial year. If you are unable to pay then it is extremely important you act as quickly as possible.

Failing to act quickly will not only incur additional penalties but HMRC may do any of the following…

  • The debt may be passed on to one of HMRC’s preferred debt collectors who will chase you for the outstanding amount.
  • HMRC may petition for your bankruptcy. This could mean you have to cease trading, your goods and assets could be sold to pay towards the debt, your future income could be used to pay towards the bankruptcy and the Official Receiver would investigate your financial affairs.
  • They could order you to pay the debt through Magistrates Court if the debt is less than £2,000 and the debt is not older than one year.
  • They could also seek a County Court Judgement against you. The process will be the same as if it was an unsecured loan or a credit card.

If you have received your tax bill and are struggling to manage  your finances then you may be able to repay the debts at an affordable level through an Individual Voluntary Arrangement. Your HMRC debt would be included in the arrangement and you would have the security that, as long as you maintain payments into your IVA, they cannot take any further legal action against you.

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