Income Tax debt is a priority debt and it is important to keep up with payments. So how can income tax arrears occur and what can you do?
Income Tax Debt - How Income Tax Arrears Can Occur
Income Tax is a tax that you pay based on what you earn through employment, self-employment, most pensions and some other forms of income. Most people in the UK get a Personal Allowance. This is an amount that they can earn before any Income Tax is deducted.
Income tax arrears can occur for several reasons:
- You made a mistake on your tax return.
- You forgot to tell HMRC about a change in your circumstances.
- You missed filing a tax return.
- HMRC has had to estimate your calculation due to one of the above reasons.
How Can I Avoid Income Tax Arrears?
If you are self-employed or own your own business, you are responsible for calculating your income. If you pay yourself a set wage or salary from the business, this should be very easy. However, if you change the amount that you take from the business month to month it can become more complicated. The best way to do this is to take an average income based on the previous six months and set aside the amount of Income Tax you would be due to pay each month moving forwards. It can be daunting at the end of the financial year to have to find a large lump sum, but if you have put some money aside each month it should be more manageable.
If you are employed, your tax will be automatically deducted from your earnings. This is called Pay As You Earn (PAYE). You are responsible for checking that your tax code is correct as this tells HMRC what your Personal Allowance is. Although your Income Tax is calculated by HMRC, mistakes can happen. If you notice early enough, get in touch with HMRC because they can adjust your tax code accordingly to collect any arrears without you having to do anything. For this, your Income Tax debt must be below £3,000.
If you find yourself in Income Tax debt, you should contact HMRC straight away. You may be able to set up a payment plan to cover the cost of your Income Tax arrears. This will either give you extra time to pay or allow you to pay in instalments. However, don’t wait until the deadline has passed if you can help it. Once this happens, you will be charged interest until your debt is paid off.
Incorrect Income Tax Calculation by HMRC - What to Do Next
If you feel that HMRC has incorrectly calculated your Income Tax, you should contact them as soon as possible. You may be able to appeal a decision made by HMRC by filling in the appeal form enclosed in your decision letter. You must do so within 30 days.
HMRC will then offer a review of the decision. This usually takes around 45 days. You can find out more about the appeals process here.
HMRC Income Tax Arrears - How to Regain Control of Your Income Tax Debt
If you find yourself in arrears with Income Tax, it is important to act immediately. You may find yourself incurring penalty charges and HMRC can act in the following ways:
- They may pass your debt on to a debt collector to recover the money owed.
- They may take out a County Court Judgement against you.
- They may petition for your bankruptcy. Your business would have to cease trading and assets could be sold to pay your debt.
To avoid any of the above, contact HMRC and request a repayment plan as soon as possible. Additionally, if you’re self-employed or run a business, talk to an accountant about keeping track of your income and outgoings throughout the financial year to avoid getting behind again.
Do You Need Help With Income Tax Debt?
If you’re struggling with Income Tax debt and unsure about how to proceed, contact Debt Movement for help and guidance. Our friendly and professional team will help you on your journey to financial freedom.