What happens if I can’t afford to pay a tax demand?

If the tax owed is correct, and you cannot afford to pay in one go, HMRC might agree to make a ‘Time to Pay’ arrangement with you, so that you can spread the payments and get yourself back up to date.

HMRC are able to spread payments over five years, but will usually ask you to show that you cannot afford to pay for time periods over three years. This means showing that you do not have enough money to pay what you owe, nor would you be able easily to access money to pay it. HMRC will still aim to collect the debt from you as quickly as is reasonably possible and any tax paid late will attract interest. But if you make a Time to Pay arrangement in advance of the tax becoming due and you stick to it, HMRC should ‘suspend’ (that is, not charge you) penalties for late payment. An instalment option may cost more in the long run.

Sometimes you may be contacted by a Debt Collection Agency on behalf of HMRC. You should check that the agency is genuine by comparing it to the list on the HMRC website or by calling HMRC. Debt Collection Agencies have broadly the same powers as HMRC to agree time to pay over up to 12 months. They will not however have any understanding of how the debt has arisen and any queries about the amount should be raised directly with HMRC. Debt Collection Agencies are authorised to contact taxpayers by phone and letter. They are not authorised to carry out personal visits. If the Debt Collection Agency fails to reach an agreement with a taxpayer they will refer the case back to HMRC to consider further enforcement action. If you feel you are being pressurised into paying more than you can afford, ask to have your case referred back to HMRC.

If your circumstances mean that you will never be able to pay the debt, for example, you are retired and on pension credit, HMRC may agree to write off the debt under hardship. If, however, if you own your property they will want paying eventually but might allow the debt to be paid from your estate when you die.