When you first start dealing with HMRC about a re-payment plan, one of two things will be happening.
You will have a new liability and will find yourself talking directly with the relevant head of tax department i.e. VAT/Corporation Tax (CT)/Pay As You Earn (PAYE) etc.
You may have an older debt that is being chased and you may be talking to the likes of Debt Management and Banking Units (DMB collection departments) Field Force, Debt Enforcement/Debt Resolution or even Enforcement and Insolvency. HMRC may also use an external collection agency at some stage too.
Our guide will help explain how to give your re-payment plan its best chance of success. We will also explain how best to use HMRCs own procedures to your advantage.
Any debt owed to HMRC will go through a collection process and dependant on where you are up to within that, the time you are given for re-payment could dramatically differ.
Firstly HMRC will always push on a 12 month re-payment plan or less. Certain departments named above are only able to accept 12 month plans as it is a set criteria i.e. Field Force. But other departments can try and give you longer, it’s all about what you say, how you present it and how strong your case is. This also includes the strength of your reassurances to HMRC that you are not a risk going forward and your liabilities won’t keep increasing.
Every time to pay arrangement comes with the warning that the very next due liability must be paid on time & in full – You must also ensure all your returns are up to date before you tackle a payment plan with HMRC, they won’t consider anything until they are.
The reason HMRC push for such short time frames are basically down to you, as a risk to treasury, so in all dealings with HMRC it’s about lowering yourself or your business as a risk to them by various reassurances’. They also try to get overdue debts paid before the next liability lands, which means they can push for an overdue VAT quarter to be settled before the next quarter is due! Obviously this is not always possible and longer re payment terms are generally needed & can be discussed.
Initially work out what you can afford to pay HMRC on a monthly basis and regardless of whether you have even spoken to them yet or not MAKE THOSE PAYMENTS EACH MONTH – this will give you a huge boost when talking to HMRC, plus you are already reducing the debt and showing willing to clear it.
Our advice is to always send your re-payment proposal in writing to HMRC in every instance and back this with either your incomings/outgoings or cash flow/forecast – this is a paper trail no matter what and the more you explain to HMRC day one, the better. Plus, should the debt end up going through several departments, you’ll always have the ability to send this in writing and again follow up with phone calls.
Now, take the leap and talk to them, be prepared for them to fight back on shorter re-payment terms, stick to what you need initially/be stubborn and start by explaining the difficulties you’ve faced, what you have done to stop this happening again i.e. cost cutting measures/new accountant/invoice factoring etc. From there advise them of what you can afford each month to re-pay.
Be prepared to go over your personal incomings and outgoings if you are an individual or if you are a company, be prepared to either go over your cash flow or have to send it to HMRC – If you have wrote in, as per our advice, they’ll have this already.
Now if this is a new/recent debt with HMRC you may get a reasonable result day one but if you need over 12 months to re-pay the debt, be prepared to play out a waiting game with HMRC. If it’s an older debt, you may find issues with the re-payment plan, depending on the term you’re asking for and which department is holding it.
Whether it’s a new or old liability, HMRC may turn down your repayment offer. DO NOT STOP PAYING WHAT YOU CAN AFFORD EACH MONTH, this is key to making this work, no matter which department you are at.
Now if this is a new debt, what will then happen is HMRC will start to take your debt through the collection process. This means a new department will get in touch and start to collect the debt. Initially this is normally just a Debt Management and Banking Unit, it will be called DMB 440 as an example – there are several.
Remember, at this stage you are making regular payments and reducing the debt. HMRCs process of passing the debt through different departments can take months sometimes, so inevitably your debt will keep reducing and you will then get to a department who may even only allow 12 months but as the debt is lower you may be able to clear this lower balance over the 12 months at that stage. The goal here is, during the time it takes HMRC to move your debt on from department to department, you are constantly making a regular monthly payment and reducing the debt.
As each new department comes along, re-send your written proposal and again follow this up by calling HMRC and discussing your issues/how you can settle the debt. You may find at any given department an acceptable re-payment plan can be reached, one you can afford each month and one HMRC will accept. They would then look to set payments up via Direct Debit to ensure stability of the re-payment plan.
As mentioned above, at some stage HMRC may use an external debt collection agency such as LCS, Advantis or Bluestone, list is not exhaustive – they will firstly write to you. Now be mindful of dealing with them, not always will they have all your HMRC debt with them and many clients fall foul of making an arrangement with this agency, thinking it’s all sorted, only to find HMRC then chase them for the rest of the debt they still hold – this can cause massive financial difficulties. This is especially true if you owe across different taxes, it is best to simply ask the debt collection company to transfer the debt back to HMRC, you want to be dealing with HMRC alone really. In addition, please note this external agency can do nothing more than chase you for the debt, they can’t remove goods, don’t show up at your house and have no powers to issue any form of court proceedings – they are just a pain basically.
Once a debt has gone through, perhaps 3 or 4 DMB units and an external agency, you start to head towards a department called Field Force.
What is Field Force?
Field Force are agents who do home visits, their goal is to figure out how a debt can be re-paid and if need be assess whether the individual or business has goods/assets that could be sold on to recoup money towards HMRCs outstanding debts.
Now don’t panic, as long as you are talking to the field force agent (who will normally give you their mobile number) about a monthly re-payment plan, the agent will do their upmost to help. Do not let them threaten you with the fact they can wind your business up or make you bankrupt – Field Force is NOT the department at HMRC who can do this at all.
Please note: Field Force can only accept plans over 12 months; it’s not the agent being difficult, it’s simply a set criteria for that unit and they have no leeway over this. Again, if you need over 12 months, still at this stage, to clear your debt you’ll need Field Force to pass the debt on – REMEMBER KEEP MAKING THOSE PAYMENTS REGARDLESS. Again, this about letting a debt move through HMRCs process, offering a re-payment plan each step of the way but also making those payments and reducing the debt further each time.
Ultimately a time or department will come, that accepts a re-payment plan you can afford, to settle any remaining balance, at that stage. After Field Force generally comes a department called Debt Enforcement.
What is Debt Enforcement?
If a debt transfers here you need to be mindful of the fact that you are getting closer to potential winding up/bankruptcy action being taken by HMRC. This is the last department in the line before a debt passes to Enforcement and Insolvency. No matter what HMRC say, throughout your dealings with them, Enforcement and Insolvency are the ONLY unit that can issue winding up proceedings or bankruptcy/county court action.
Debt Enforcement will again always try and help and come to some form of re-payment plan/time to pay arrangement. However, this is a tough department and they generally stick to a 12 month plan also. You can request longer but it brings us back round to an earlier point – It’s about how long you’re asking for, what you present and how you support it and reassure HMRC.
It will be a push with Debt Enforcement to get even 16/18 months, so be prepared for this and ensure you have everything you need to give your case its best chance of success. If you are finding it difficult to reach an re-payment plan with this team and the time you need to re-pay a liability is simply not agreed or not achievable through your own affordability, you still have time to consider other options and plan B’s, whilst you are with this team.
It may very well be worth seeking further advice at this stage and considering all options to deal with your HMRC debt, be them insolvency options or even seeking funding/lending.
Should a debt pass to Enforcement and Insolvency life can become more difficult.
What is Enforcement and Insolvency?
This team are extremely strict, their attitude is, that they are not there to collect a debt, simply to enforce it. They may give you time to repay a liability still but at best you are probably looking at 2-4 months.
If you are at these stages, don’t let anyone or any company out there fool you that they can get you extended times, no matter who deals with HMRC, there’s a limit of several weeks allowed to repay debts over.
Try to have other options in play also, at this stage. If Enforcement and Insolvency (EIS) issue a winding up petition, the companies life or an individual’s if bankruptcy proceedings are issued can become increasingly difficult, including the freezing of company accounts.
Seek advice each step of the way with HMRC, experienced agents, like us, can help guide you and if needed, can do all the above for you.