HMRC tax arrears

If you owe money to HMRC and you’re struggling to make your payments to them, a self-employed IVA could be a possible debt solution for you.

Any self-assessment tax and National Insurance that you owe up to the end of the tax year in which the self-employed IVA is agreed by creditors can be included as a debt in your self-employed IVA.

It is important to include all debts owed to Her Majesty’s Revenue & Customs (HMRC) in your self-employed IVA – even if they are estimated – or relate to the current tax year – but are not actually due to be paid until after your self-employed IVA is agreed by your creditors.

Any VAT outstanding up to the date that your self-employed IVA is agreed by your creditors can also be included in as a debt in your IVA. You will then need to pay all your future VAT direct to HMRC during the rest of your self-employed IVA.

Any funds that you would normally have put aside to pay HMRC for the tax year in which the IVA is approved, should be paid into your IVA instead – in addition to your agreed monthly IVA payments. Your Supervisor will then distribute this to the creditors in your self-employed IVA.

This does not adversely affect you – it just means you pay into your self-employed IVA the tax provision for the year in which your arrangement was agreed, rather than putting it aside to pay to HMRC.

It is really important to submit all your tax and VAT returns on time to HMRC, so as not to incur any HMRC interest and penalties.

We will ask for a copy of your last tax return to check that your proposal is consistent with the information you have recently provided to the tax authorities. This will allow us to explain any difference between the income in your business cash-flow and any tax returns you’ve submitted previously.

It always remains your responsibility to submit your own tax return. You should either submit this yourself, or with the assistance of your accountant or tax adviser. This applies to all tax returns that are due before, during and after your self-employed IVA.

HM Revenue & Customs are likely to reject your self-employed IVA proposal if your tax returns aren’t up-to-date. And after your self-employed IVA has been
approved, it could fail if any future tax returns aren’t submitted on time and/or if any future tax liability isn’t paid.

Before accepting an IVA, the tax authorities will expect to see evidence of the following:

  • That you are being honest in your disclosure
  • That all your tax returns are up-to-date
  • That your self-employed IVA proposal is consistent with the previous trading information you’ve submitted to HMRC
  • A business cash-flow forecast for the next 12 months
  • That your offer is the best available, and that it is viable and achievable
  • That your self-employed IVA proposal includes provision for all your future tax liabilities to be paid in full and on time
  • An explanation of why you have broken any previous payment arrangements with HMRC (if applicable)

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Tax rebates

If you’re due a tax rebate – for either a tax year prior to the approval of your self-employed IVA, or the tax year in which it was approved – HMRC will usually send the rebate directly to your self-employed IVA Supervisor, or offset it against any outstanding amount you owe them. 

HMRC will send any rebates for tax years after the tax year in which your self-employed IVA was approved directly to you. You will need to contact your Supervisor to let them know you have received a rebate.

They can then consider together with you whether you can keep the rebate or not – for example, you may have earned less income in the tax year compared with your projected cash-flow.

Legal action by HMRC

If you owe more than £2,000 to HMRC, they will normally pass on the debt to their enforcement team. They will usually expect full payment of the amount you owe them within a few months.

If they don’t receive payment – and you can’t negotiate an arrangement – they will usually petition for a bankruptcy order against you.

Bankruptcy proceedings may also be started if you agree a payment plan but fail to stick to it. You may be able to avoid bankruptcy by applying for a self-employed IVA.

If you find yourself in this position, please contact PayPlan as soon as possible for further advice.


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