TYPES OF DEBT

Income Tax Debt Help & Advice

Types of Debt

Income Tax Debt Help & Advice

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If you fall into debt with your income tax, VAT, National Insurance or have a tax credit overpayment, this will usually be dealt with by Her Majesty’s Revenue and Customs (HMRC). Ignoring this type of debt can have serious consequences, so it’s important to deal with them as quickly as possible.

These are considered to be priority debts, and not paying them can lead to court action, bailiff visits and can even lead to imprisonment. This can understandably cause high levels of stress, especially since action from HMRC can escalate rather quickly.

 

Consequences

HMRC don’t collect debts in a traditional fashion. They have formal processes that need to be followed, and more often than not they go straight to legal action.

A common route they will take is to apply to the court for a CCJ to be taken out against you in an attempt to force you to pay back the balance owed. This will normally outline what repayments you will have to make and will show on your credit file, which will have an adverse effect on your credit score.

They will also commonly apply to your employer to take payments from your wages before they reach you. It’s important to contact them before this happens as it can often be a significant amount taken.

Another route they will take is to issue a magistrates’ court summons. This will require you to attend a court hearing with details of all your finances to decide a payment plan. If you do not stick to the plan agreed, you will be called for further court appearances and can even end up in prison. It is also an offence not to attend court when summoned.

Falling into debt with HMRC can also lead to them petitioning for your bankruptcy. This is generally done if your debt is over £5,000 and will mean that any assets you own will be seized and sold to pay the balance. This will have a severe impact on your credit score and, if you are self-employed, on your business.

 

How student loan debt can be avoided

It’s often the case that people fall into this type of debt by accident, but there are ways to help you avoid this:

Check what you owe

Many of us assume that HMRC’s calculations are correct, but this isn’t always true. Double check the figures you provide them and that all the information is correct before submitting it. This way you can avoid any miscalculations or over-estimations. For those that are self-employed, you can check this with your accountant.

Create a budget

Once you’re sure you have the right calculations, create a budget with this worked in. That way you will be less likely to be caught short.

Keep HMRC updated

If you’re worried about falling into debt with HMRC, contact them and keep them up to date with your situation. They will have ways to help you to avoid running up a bill that you can’t pay.

 

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