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Tax and HMRC debts. Business owner advice

Debts to His Majesty's Revenue and Customs (HMRC) are always priority debts. These include Income Tax, National Insurance or VAT arrears. You need to deal with these as soon as possible.

Not paying these debts can lead to court action or bailiffs or Sheriff officers and, in some rare cases, prison.

5 steps to help you deal with tax arrears

1. Check your tax bill is right

First check that HMRC are asking you to pay the right amount. This will depend on the net profit of your business. That means the actual money coming in after you have taken away ‘deductions’ or the things you cannot be taxed for.

You need to look at:

  • Any spending that helps you keep the business running
  • Any VAT, if you are registered
  • Your tax code
  • Whether there have been any big changes to your profits since the last tax bill. In this case it may have been estimated wrongly

2. Work out how much you can afford to repay

You will need to find money for this from your personal budget.

It is important to separate business and household income and spending.

Your budget helps you see what you can afford to pay towards tax arrears.

Use our budgeting template and guides to put this together.

3. Contact HMRC

It is a bad idea to ignore letters from HMRC. Get in touch with them as soon as you can and ask them to agree to a payment plan to clear the debt.

Call HMRC on 0300 200 3300.

  • Monday to Friday 8am to 8pm
  • Saturday 8am to 4pm

HMRC will want the debt paid before your next tax bill is due.

You may be able to repay them over a longer time if you cannot afford this. Show them your budget and explain that:

  • You are offering what you can afford
  • This is what is left over in your personal budget after bills and living expenses
  • This amount lets you keep up with your ongoing tax

4. Make your payments

Start making payments after you speak to HMRC. Even if they do not accept your offer.

HMRC might assume you are avoiding tax if you do not pay anything at all.

5. Keep them updated

Make sure you update HMRC on your situation.

Let them know if you are struggling to pay. Otherwise, they may assume you are avoiding paying.

What happens if I do not pay my HMRC debts?

Further action can be taken against you if you do not pay HMRC debts. HMRC can: 

  • Send you a hearing summons if you owe less than £2,000
  • Start bankruptcy proceedings if you owe more than £750

If you still do not pay what you owe

HMRC can take more action to collect what you owe.

Further court hearings to decide on other action to take against you

Another hearing is arranged to decide if you are guilty of either:

  • ‘Wilful refusal’: You can pay but you are choosing not to
  • ‘Culpable neglect’: You can pay but you are ignoring the debt

This could lead to further court action.

More money being taken directly through your tax code

HMRC can alter your tax code to collect a debt. This increases the tax deducted from your wages.

  • If you earn less than £30,000, they can collect up to £3,000
  • If you earn over £90,000, they can collect up to £17,000
  • If you earn between these numbers, they can collect between £3,000 and £17,000

Money can be taken money from bank and building society accounts

  • This is only for debts of more than £1,000
  • They must leave a minimum of £5,000 in savings
  • They cannot take this action if your savings are under £6,000

Only 50% of joint savings are seen as yours when the debt is in your name alone.

Bailiffs can contact you

  • HMRC enforcement agents (bailiffs) can take stock and equipment from your business or goods from your home
  • They can sell these items to clear your debt
  • They do not need a court order to do this
  • They can force entry to your business, but they need court permission to enter your home

That is rare though. They will sooner use another collection method like making you bankrupt.

More help is available

A free, independent, and confidential service for anyone with a tax question or problem.

  • Helpline - 0845 120 3779
  • 10am to 12 midday
  • Mondays to Thursdays

Tax help for older people 

An independent and free tax advice service for older people.

  • Helpline - 0845 601 3321
  • Also provide home visits if needed