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Bankruptcy or agreed offer to Inland Revenue

My client, due to personal problems, has only just got round to filing the last 5 year tax returns! The IR has started to threaten bankruptcy over the estimated debt of £52K. The actual debt outstanding following the submission of all returns is now £8.5k.

We have contacted the Revenue to try to put a stop to the bankruptcy and come to some arrangement over the outstanding debt. He cannot afford to pay it all now and has no assets.

The Revenue has asked him to put an offer in writing for them to consider.

Does anyone know what a reasonable offer is bearing in mind he currently has very little work. My client has suggested £500 per month but my feeling is that is too low.

Any comments would be appreciated.


Andrew Nicholas


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Why not just go bankrupt?
He will be clear in a year, and it only costs about £500. A bargain in the circumstances.

You could persuade him to do an IVA, but the only person who will win the insovency practitioner.

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Keep your promises
I would agree with the tone of earlier comments.

Unfortunately it sometimes seems that there are only two ways to deal with these (Crown Debt) issues, the debtor is made bankrupt (by the crown) or the debtor pays.

Had the debt been less than £5,000 they could have sought a county court administration order and then an order for consolidation - unfortunately the limit on AOs has not increased for many years as it is felt IVA and proposed Simple IVA and NINA (No Income No Asset) will be cure-alls.

A couple of years ago a scheme (which I believe stopped last March) was rolled out by Business Link (based on a Leicester scheme) whereby the BL advisor would look at the situation and, if they agreed that an informal proposal looked reasonable, the Crown would run with it (more often than not). Unfortunately this scheme appears to have now ceased.

Circumstance will always alter cases and we don't have any indication as to assets that might be available if push came to shove. It is always more straightforward to negotiate re the can't pays than it is the won't pays. Poor compliance history will always stand against too.

Keep them informed, keep your promises, don't kill yourself in the process.

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What can he afford?
When I worked for the Collectors (few years ago now so it may have changed) we used to request details of income & expenditure from anyone who wanted an arrangement and we would use that as the basis to consider a decision. Maybe you could draw up a brief spreadsheet for him showing expected income, essential outgoings (rent/mortgage, household bills etc) and make an offer based on that?

Also agree with the first poster, begin making payments before you make an offer, and make sure the payments continue and are regular. This won't keep the Collector off your back entirely but it will make them more amenable to discussion.

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Payment Offer
What ever your client offers they should be able to afford it - the level should be based on that only.

I normally tell clients to initially just start paying. - Its easy to do it over the internet - and make the payments regulary - never missing a payment. (I had one client paying initially £25pw on a £5K bill, until he could afford to settle the balance at a later date!) It normally stops the HMRC in their tracks. It is important they NEVER miss a payment. Because that then give the HMRC the right to start proceedings.

Its important that your client shows "good will" by making the payments and not delay making them. I stopped putting it in writing years ago, as I could never get them to agree to it. Whereas clients just making regular payments (Better to pay a lower amount weekly if he can as it more often rather than monthly!) seem to be more successful - and are not hassled by the Collectors

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Just a suggestion for the future - if you have a client like this again, suggest they start making payments on account as soon as the have their UTR.

They should pay on account what ever they can afford. Since instigating this a couple of years ago, with clients with more than 1 tax return outstanding - these clients have had very few problems - the penalties are greatly reduced as is any interest that may be due. I even had one client who ended up getting a rebate plus interest - that client is now one of the first to get thier accounts to me every year now!

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Why not Bankruptcy?
With a debt of £8.5k this is a bit sledge-hammer/nut (without knowing more). If able to pay £500/month could be subject to an Income Payments Order/Agreement for three years notwithstanding bankruptcy ending after just one (in most cases).

If the £8.5k is the only debt certainly wouldn't recommend IVA - if informal deal can't be struck why would a formal one given you need 75% of creditors to vote in favour... Would agree though that too many IVA might be the best thing for the IP, not necessarily the best for the debtor. This doesn't mean jumping into B'cy at the first hint of problems.

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Are there no negative repercussions of bankruptcy after one year? No negative effect on credit rating?

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Yes & Yes. In addition to being subject to an Income Payments Order/Agreement for up to 3 years, having your dwelling house (if any) available to be dealt with for up to 3 years etc. etc. you will always have to answer the question "have you ever been subject to a Bankruptcy Order" with the answer "Yes". Whilst obtaining credit post Bankruptcy is quite straightforward (at present) it might not always be so and the T&C of borrowing are generally less favourable (although the impaired credit market is growing considerably).

Bankruptcy should not be entered into lightly without knowing all of the implications - what would you do if faced with a 15 year Bankruptcy Restriction Order/Agreement... Take good advice from someone who is going to give the best advice for the questioner and not simply the best advice to get themselves another fee.

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