HMRC Tax Debts If You’re Self-Employed
28th January 2013
Tax is normally very straightforward for the employed. Your employer retains the tax due from you whenever you are paid and sends it to HMRC on your behalf. The situation is much less straightforward if you are self-employed. You submit an annual tax return and then typically pay your income tax liability to HMRC in a couple of lump-sums each year.
The self-employed therefore need to set money aside to pay their tax bills when they fall due. This isn’t easy for anyone, but if you’re struggling with other debts already it can be even harder. Saving money for tax can be next to impossible when hundreds of pounds have to be paid out on your credit cards and bank loans each month.
The end result is that self-employed people that are struggling with debt often find that they also owe money to HMRC. This raises the question on whether the self-employed can include HMRC debts as a creditor in their protected trust deeds?
Many people fear that tax debts will be treated differently from regular consumer debts that are owed to banks and card providers. However, this is not the case. If you sign a Scottish trust deed you can include tax debts that are due to HMRC at that point in time.
The self-employed should also note that this situation isn’t optional. When you enter a trust deed you must include all debts that exist at that point in time. You cannot opt to include some debts and exclude others. This is true even if you already have an arrangement in place with HMRC to repay your arrears over time.
One of our experts, Kevin Mapstone, wrote in our forum, “The recommended course of action for a self-employed person entering a trust deed is to make up accounts for the tax year up until the date of signing the trust deed, and then start another accounting period for the rest of the tax year afterwards”. You should ask your own proposed trustee to confirm that this will be the course of action that they recommend to you.
It’s important to note that, if you’re in trouble with tax debts, that it isn’t a good idea to leave taking action to get debt advice to the last minute. HMRC are charged with protecting the public purse. They therefore can and do take firm action against those that haven’t paid their tax (or made alternative acceptable arrangements). They also typically act sooner than regular lenders. For example, they may seek your sequestration (bankruptcy) if things are left unmanaged for too long.
Will HMRC agree to your Scottish trust deed becoming protected? This really turns on the facts of your case. You’ll need to help your trustee put together a good case that represents your interests well. HMRC don’t have to accept a trust deed, but they may well do so. If your self-employed tax debts make up less than a third of your overall debts, HMRC (acting alone) will not usually be in a position to prevent your trust deed from becoming protected anyway.
If you are self-employed and struggling to manage your debts don’t delay seeking advice and help. A range of options exist that will help you to manage your regular debt alongside any existing tax liabilities.
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