Helping a client in tax debt: Part 1
Tina Riches and Ian Browne from TaxAid explain over a series of three articles how helping a client with tax debt can help your practice.
It is very tempting to stop acting for clients who refuse to pay your fees. However, there is a way to help your client get back on an even keel – and ensure you are paid sooner.
By understanding the options you will be better equipped to help your client or help them help themselves, or even refer them to someone who can help just in the short term.
There may be underlying debt issues including tax debt. Apart from the worry of securing payment of outstanding fees owed to you, is there any advice you can offer a client who finds themselves in hock to HMRC?
In this article, we look at time to pay (TTP) arrangements. The following two articles will look at more formal arrangements.
Getting blood from a stone
There was a time when HMRC viewed the general taxpaying public in simple binary terms: the compliant who pay and the non-compliant who do not. Those who work in VAT know only too well that “insufficiency of funds is not a reasonable excuse”.
Debt recovery has become more sophisticated in today’s digital age and HMRC now takes advantage of data sources so it can recover and enforce tax debt more efficiently.
HMRC Debt Management (DM) follows a process for the civil recovery of debt that starts with a payment request and may end up in the bankruptcy court.
Unlike most creditors, HMRC is reliant on the debtor to advise them what they owe via self assessment. Frequently, where there is tax debt there are likely to be other tax compliance failures, especially in terms of filing obligations – usually due to non-payment of adviser fees!
Some people fear that failure to pay tax on time may lead to criminal prosecution and imprisonment. In fact, this is rare. HMRC prosecutes some people every year, but these cases usually involve allegations of serious dishonesty or tax evasion. HMRC does not take such action just because someone has not paid their tax on time.
Time to pay
Most clients do want to settle their tax liabilities but circumstances arise where they are not able to. TTP arrangements have been used much more widely since the last recession in 2008/09 when HMRC ramped up the use of TTP considerably to help with the trading difficulties some businesses were facing at that time.
When there are outstanding filing obligations, HMRC’s DM team is unlikely to agree to a TTP with the taxpayer. To have meaningful discussions about TTP it is essential that the taxpayer brings his or her tax affairs up to date so that HMRC knows the amount of tax debt at stake. You or the taxpayer then need to contact HMRC’s DM team as soon as possible.
TTP arrangements are a concession on HMRC’s part and not a right of the taxpayer. Engagement with HMRC and demonstration of hardship – in writing if necessary – is key. Obtaining a TTP means demonstrating likely cash flows, and firm proposals to settle the debt over a reasonable time frame. HMRC usually looks for repayment within 6-12 months, but it is not unusual or unreasonable to seek an agreement of up to 36 months. Sometimes this may be longer when there are unusual circumstances such as under the loan charge.
If DM agrees to a request for time to pay, it is important to receive confirmation of this in writing. If you (or the client) has received a verbal agreement at a meeting or on the telephone, ask for the arrangement to be confirmed in writing. If this is not done, there could be difficulties later when there may be a dispute over exactly what was agreed. Having an agreed payment plan in place will mean that the client avoids further late payment penalties.
If at any time the client is likely to default, then HMRC should be contacted as soon as possible to discuss whether the TTP agreement could be altered. Don’t wait for HMRC to approach your client.
Where to turn for help
If you feel that you can’t help a client in tax debt, you may wish to refer them to one of the charities such as TaxAid that assist in this area.
Further detail on tax debt can be found on our TaxAid website. Low-income taxpayers in need of tax debt advice can call the TaxAid call line. We will not act for represented clients, but in other cases, such as if you wish to refer a contact to us, agents can call our advisers helpline.
Kilimanjaro! You can do it!
See our fundraising page on the Bridge the Gap website, including details of our #Tax2020 Kilimanjaro challenge, when a team of tax professionals will attempt to reach the summit.
There is also more information, including details of our information evening on 24 September 2019. The tax charities would be delighted if you could join us in this challenge, to have fun, test your endurance and fundraising skills!