Agreeing payment with HM Revenue & Customs
In some cases, if an acceptable offer is not made to HM Revenue & Customs, they may start legal proceedings against you.
Distraint
HM Revenue & Customs has the power to seize your personal goods for sale by public auction to enable your tax liability to be settled. You would normally be given fourteen days to pay the outstanding tax before the sale takes place.
The following items should not be taken away by the Revenue:
- goods which you can prove belong to someone else, or which are jointly owned with someone else
- perishable food
- beds and bedding
- clothes
- sufficient furniture for you to sit at a table
- basic cooking equipment
- goods subject to a hire purchase agreement
- livestock
- loose money (coins or notes), although a coin collection is not exempt
- the necessary tools of your trade, although trading stock is not exempt and the Revenue may not agree that a motor vehicle is a necessary tool of your trade if an alternative means of transport is available.
The Revenue is more interested in items with a higher value, such as jewellery, motor vehicles, works of art and consumer durables.
Magistrates court proceedings
If the tax debt is below £2,000 the Revenue may apply for a magistrates order for the payment. If you fail to make payment, the courts have the power to enforce payment. If you receive a summons for tax and you are unable to make the payment, you should attend the court and ask the magistrate to allow you to settle the liability over a period of time.
County court proceedings
If the tax debt is up to £20,000 the Revenue may seek a county court judgement. The debt is likely to be entered on the public register of county court debts. If you fail to make payment of the liability they may apply for an "attachment of earnings" order whereby the payments will be deducted from your earned income or a "garnishee order" against your bank account.
The County court proceedings commence with the issue of a county court summons. An "admission" form, which you should use if you want to apply to the court to make payment of the tax by instalments, accompanies this. You will need to show details of your financial circumstances and the amount you can afford to pay each month.
If the county court agrees to the tax being paid in instalments, which can be at a lower amount than the Revenue may have agreed to, interest will be frozen from the time of the judgement. As long as you keep making the payments the Revenue can take no further action regarding the debt.
Bankruptcy
The Revenue may, if all else fails, petition for your bankruptcy, although this normally applies to debts in excess of £5,000. This can lead to the loss of your home and business. Even if you do not have any assets the Revenue may still seek bankruptcy.
Bankruptcy can sometimes be avoided by entering into a formal "individual voluntary arrangement" with creditors under the Insolvency Act 1986. The Insolvency Practitioner and the court supervise this.
Before taking any action regarding bankruptcy you should seek professional advice.
Keep a record
You should always keep a copy of all documentation with HM Revenue & Customs in case this is needed at a later date. If you write to them you should quote your tax reference and/or your National Insurance number. When speaking over the telephone you should keep a note of what was discussed/agreed, together with a note of the name of the person you spoke to.
Available publications
There are various free publications that are available from all local tax offices:
- Collection of Tax (Code of Practice 6) - Booklet explaining collection policy and procedures
- Distraint (Collection 1)
- Magistrates' Court proceedings (Collection 2)
- County Court proceedings (Collection 3)
- Bankruptcy (Collection 4)
- You and HM Revenue & Customs (IR120) - this explains the Taxpayer's Charter and how to complain
- Mistakes by HM Revenue & Customs (Code of Practice 1) - explains the remedies available
The Adjudicators Office has the following free publication (telephone 020 7930 2292):
- How to complain about HM Revenue & Customs
The Insolvency Service has the following free publications (telephone 01530 272 515):
- Guide to Bankruptcy - a general guide
- A guide for directors - explains the effect of bankruptcy on company directors
- What will happen to my home? Information on what will happen to your home and the procedures whereby a spouse, partner, friend or relative may 'buy out' your share so as to avoid the property being sold.
There are also a number of publication available at the TaxAid Web site.
This page was last reviewed on 03 April 2006. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
