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Mark McLaughlin looks at how HM Revenue & Customs handles requests by taxpayers for more time to pay their tax bills.

Introduction

Taxpayers who do not pay their tax liabilities on time fall into two categories – those who ‘can’t pay’, and those who ‘won’t pay’. At least that seems to be the view of HM Revenue and Customs (HMRC). What difference does it make which category you fall into if you have tax debts? The answer is – quite a bit!

Tax law states the dates on which tax becomes due and payable. HMRC’s basic position is that tax is payable when it falls due. Whilst the tax legislation does allow certain tax liabilities to be paid by instalments, those instances are rare. In all other cases, it is understandable (although perhaps unrealistic in the present economic climate) that HMRC expects all taxpayers to ‘pay up’ in full, and on time. Failure to do so has repercussions, in terms of possible interest and penalty charges.

HMRC generally discourages taxpayers from paying their tax liabilities late. After all, to do otherwise would be encouraging taxpayers to break the law! However, whilst the ‘official line’ is to enforce the law, in practice HMRC will consider requests from taxpayers (or their agents) for time to pay outstanding tax liabilities.

It’s Official

How HMRC reacts to requests for ‘Time To Pay’ will probably depend on whether it considers that the taxpayer ‘can’t pay’ or ‘won’t pay’. HMRC defines both of these categories in their guidance manual for its staff, the Debt Management and Banking Manual. HMRC states the following under the heading DMBM80050 Time to Pay: Introduction: Can the Customer Pay?

“‘Can’t Pay’ is defined as the customer who wants to make payment, but currently doesn’t have the means to do so.

‘Won’t pay’ is simply defined as the customer who can, but will not, make payment.”

What Next?

HMRC’s approach to a request for Time To Pay will depend upon which category the taxpayer has been placed into. HMRC also states:

“Where the customer clearly shows that they ‘can’t pay’ as opposed to a ‘won’t pay’, our aim is to negotiate a payment arrangement that allows them to clear their debt and helps them to make future payments on time, where this is realistically possible. Where someone can’t pay and their best proposals show that they can’t afford to meet future liabilities then we cannot allow [Time To Pay].”

However, taxpayers placed in the ‘won’t pay’ category can generally expect a harder time. HMRC guidance indicates that Time To Pay requests will be refused, and enforcement action will be started as soon as possible.   

Putting Things Right

The problem with this ‘can’t pay’ or ‘won’t pay’ approach is that it is rather simplistic, which could result in HMRC placing taxpayers into the ‘won’t pay’ category in error. This could have unfortunate consequences for taxpayers who would ordinarily pay their tax bills on time, but are genuinely unable to do so at the present time. What can be done if this happens to you?

Taxpayers (or preferably agents with experience in this area) should contact HMRC’s Debt and Banking Directorate, and speak to the person dealing with the Time To Pay request. It is important to clearly explain the taxpayer’s financial difficulties, what is being done to resolve the position, and his or her ability to meet the Time To Pay proposal. It would probably also help to emphasise the taxpayer’s intentions to clear all future tax liabilities on time.

If the HMRC debt management official is unwilling or unable to move the case from ‘won’t pay’ to ‘can’t pay’, be prepared to take the case to a higher level, by asking to speak to a more senior HMRC officer.

One Step Ahead

Of course, prevention is better than cure. By contacting HMRC and asking for Time To Pay before the tax becomes due and payable, it should be possible to avoid being categorised as a ‘won’t pay’ case by mistake. In its online publication for taxpayer agents 'Working Together' Issue 43, May 2011, HMRC offers the following advice:

“We understand that some of your clients may find themselves in financial difficulty and worry that they won’t be able to meet their tax obligations. If they are in this position, the important thing is that they – or you, as their agent – contact us straight away – before payment is due, so that we can help. The support we can offer (for example – offering an instalment arrangement) will be judged according to the particular circumstances of each case.”

So stay one step ahead – if you are having temporary financial difficulties and are unlikely to pay your next tax bill on time, contact HMRC and ask for extra Time To Pay before the due and payable date - or better still, get a tax professional to do it for you. It could save you more time and trouble later on.  

Mark McLaughlin CTA (Fellow) ATT TEP is a consultant to Tax Debts Limited, a debt management service for UK taxpayers.