HMRC Tax Debts If You’re Self-Employed
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. In fact, if you sign a Scottish trust deed you must include tax debts that are due to HMRC. Alternatively, you can seek to repay your tax debts in full via a Debt Arrangement Scheme, which often means it is possible to force HMRC to abide by a repayment period that is longer than they would normally accept,
Tax Debt and Scottish Trust Deeds
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.
All liability for self-assessment income tax for the tax year in which you enter a Protected Trust Deed is included. You would still need to lodge a self-assessment tax return for the year as normal but the resulting tax owed would all be included in the Trust Deed, even for the remainder of the tax year after the Trust deed was signed. It is usually expected instead that extra funds should be paid into a Trust deed during this period as they do not have to be put aside for tax.
A new UTR number would be issued for use from the start of the next tax year onwards.
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.