Income Tax Debt

Income tax debt is a priority debt, meaning it must be repaid before non-priority debts, such as credit cards, personal loans, and overdrafts. Because income tax debt is handled by HMRC, there can also be serious consequences for ignoring it or refusing to pay it.

In this guide, we’ll cover income tax debt in further detail, including what it is, what happens when you fall into arrears, and where to get further help and advice.


Dealing with income tax debt can be a stressful and challenging experience. In the UK, income tax is a mandatory payment individuals and businesses must make based on their earnings. However, circumstances can arise where individuals find themselves unable to meet their income tax demand.

In this article, we explore what income tax entails, the payment process, and delve into effective strategies for dealing with debts to HM Revenue and Customs (HMRC).

We also examine available debt solutions in the UK to assist those facing unaffordable income tax debt.

What is income tax?

Income tax is a mandatory tax imposed by the government on individuals and businesses based on their earnings or profits.

HM Revenue and Customs (HMRC) is the authority responsible for managing income tax affairs in the United Kingdom.

It is a significant source of government revenue, supporting public services and infrastructure.

When it comes to income tax, HMRC state the regulations and guidelines surrounding the tax, including tax rates, thresholds, and reporting obligations.

For individuals, income tax is deducted through the PAYE system, while businesses file tax returns to declare their profits and determine their tax liability.

Understanding and complying with income tax regulations is essential to ensure proper management of tax affairs and avoid any penalties or legal issues.

Seeking professional advice or assistance from tax experts can provide valuable insights and help individuals and businesses navigate their income tax obligations effectively.

How do you pay income tax?

There are two primary methods of paying income tax in the UK:

Pay as you earn (PAYE)

For individuals who are employed, income tax is typically deducted automatically from their salary through the PAYE system, before it ever reaches their bank account.

Employers use the tax code provided by HM Revenue and Customs (HMRC) to calculate the correct amount of income tax to deduct.

This system ensures that tax contributions are made throughout the tax year, and individuals receive their net pay after tax deductions.

If there are any changes to personal circumstances or income, individuals should notify HMRC to ensure the tax code is adjusted accordingly, as this can have an impact on their estimated income tax bill.

At the end of the tax year, individuals receive a statement summarising their earnings and the amount of tax paid, along with any adjustments or refunds.

Self-assessment tax return

Self-employed individuals, those with additional sources of income, or individuals with income not covered by PAYE, are required to complete a self-assessment tax return.

This involves reporting income, expenses, and other relevant details to calculate the tax liability.

HMRC provides guidance on how to complete the tax return, including the use of the tax code specific to the individual’s circumstances.

Payment of the tax owed is typically made in two installments: the first payment is due by January 31st after the end of the tax year, and the second payment is due by July 31st following the tax year.

How can I keep on top of my income tax obligations?

Below are three top tips for staying on top of your income tax:

Keep organised records

Maintain accurate and organised records of your income, expenses, and relevant financial documents throughout the year.

This includes keeping track of receipts, invoices, and other supporting documentation.

Staying organised will help you accurately report your income and claim eligible deductions when preparing your tax return.

Plan for tax payments

Stay proactive by planning and setting aside funds for your tax payments. Consider estimating your tax liability in advance and saving a portion of your income specifically for tax purposes.

This will help ensure that you have the necessary funds available when your tax payment is due, reducing the risk of falling into arrears or facing financial strain.

Make the most of useful resources

It’s crucial to stay up-to-date with any changes that may affect your tax obligations.

Regularly review official tax resources, such as the HM Revenue and Customs (HMRC) website, to stay informed about any new rules, deadlines, or available deductions.

Being aware of updates will help you make accurate tax calculations, claim eligible deductions, and fulfill your income tax responsibilities effectively.

Seek professional advice

If you have the means, consider seeking advice from qualified accountants or tax professionals who specialise in income tax.

They can provide valuable guidance on tax planning, help you understand tax regulations and obligations, and ensure compliance with tax laws.

What happens if I fall into income tax arrears?

There is a process for paying your income tax bill late. If you find yourself unable to pay your income tax on time, you should take the following steps:

Contact Her Majesty’s Revenue and Customs (HMRC)

Inform HMRC about your situation and explain the reasons for the late payment. Open communication with HMRC can help establish a dialogue and potentially avoid or minimise penalties.

Discuss payment arrangements

Income tax debts are priority debts, which means there are severe consequences for those who fail to repay them.

With that in mind, you should request to set up a payment plan with HMRC.

They may allow you to set up what’s known as a Time to Pay Arrangement for paying the outstanding amount in installments over an agreed-upon period.

Be prepared to provide information about your financial circumstances to support your request.

Pay as much as you can

If you cannot pay the full amount owed, it is advisable to make a partial payment towards your income tax bill.

Paying what you can demonstrates your intention to fulfill your obligations and may reduce the potential penalties and interest charges.

Keep records of communication

Document all correspondence and interactions with HMRC regarding your late payment.

This will serve as evidence of your efforts to resolve the situation and can be useful in case of disputes or further inquiries.

What happens if I don’t pay my HMRC debt?

There can be serious consequences if you fail to repay your outstanding income tax returns.

Below are some of the options available to HMRC in order to collect income tax arrears.

Visit from a debt collection agency

If HMRC is unable to collect the debt through communication and reminders, they may involve a debt collection agency to pursue the outstanding amount on their behalf.

Debt collectors may contact you directly or visit your premises to discuss payment arrangements and collect the debt.

County Court Judgment (CCJ)

The organisation has formal processes that must be followed and likely lead to legal actions which can include applying to the court for a County Court Judgement (CCJ).

This will attempt to force you to repay the balance owed and will outline what repayments you will be required to make. A CCJ will appear on your credit file and hurt your credit score.

Magistrates’ court summons

You may also be issued with a magistrates’ court summons which will call on you to attend court with your financial details to determine a payment plan.

Should you fail to comply with the agreement further court action may be required and could result in imprisonment if you continually break the rules of the agreement.

It’s important to recognise that you are legally obliged to attend court when summoned.

Attachment of earnings order

An application for an attachment of earnings can be made by HMRC – meaning a significant proportion of your wage will be taken before you are paid.

In some instances, money from any savings over £5,000 you may have will also be taken from your savings account.

Enforced bankruptcy proceedings

HMRC can also petition to have you declared bankrupt to reclaim money, depending on how much debt you owe.

If your debts total more than £5,000, you may be at risk of enforced bankruptcy. This could lead to assets you own – including your home – being sold to repay your debt.

How do I complain to HMRC if I feel they have treated me unfairly?

If you believe you have been treated unfairly by HM Revenue and Customs (HMRC), you have several avenues for making a complaint:

Contact the HMRC Office

Begin by contacting the HMRC office responsible for handling your case. Explain your concerns and provide details of the issue you believe to be unfair.

The HMRC office will investigate your complaint and work towards resolving the matter.

Speak to a complaints handler

If you are not satisfied with the response from the HMRC office, you can escalate your complaint to a dedicated complaints handler.

They will review your case independently and provide further assistance in addressing your concerns.

Request that HMRC look at your case again

If you feel your complaint has not been adequately addressed, you can request a review of your case.

HMRC will assign a different officer to re-examine your circumstances and provide a fresh perspective on the matter.

Take the complaint to the Adjudicator’s Office

If you remain dissatisfied with HMRC’s response, you have the option to escalate your complaint to the Adjudicator’s Office.

The Adjudicator’s Office is an independent body that reviews complaints about HMRC’s handling of tax matters. They will conduct an impartial investigation and provide a final decision.

When making a complaint, it is important to provide clear and specific details about the issue, any relevant documentation, and your desired outcome.

Keeping records of all communication and documenting the steps you have taken will help support your case.

What are my options if I can’t afford my unpaid income tax bill?

If you find yourself unable to afford your income tax bill, there are options available to help you manage the situation.

Debt Management Plan (DMP)

A Debt Management Plan (DMP) is an informal arrangement with your creditors, including HM Revenue and Customs (HMRC), to make reduced monthly payments based on what you can afford.

This plan can be administered by a reputable debt management company, who negotiates with your creditors on your behalf. While a DMP can include various debts, including income tax, it is important to note that HMRC’s acceptance is discretionary.

Individual Voluntary Arrangement (IVA)

If your estimated income tax debt is significant, and in conjunction with other debts, an Individual Voluntary Arrangement (IVA) may be an option.

It is a legally binding agreement between you and your creditors, including HMRC, where you make affordable monthly payments over a fixed period (usually five to six years).

The repayment amount is based on factors such as your income, assets, and the amount of income tax debt owed. At the end of the IVA term, any remaining debt is typically written off.

Where can I get help with tax debts and financial issues?

When dealing with unpaid income tax debt, it’s important to take action promptly and engage with HMRC or relevant debt management professionals to address your financial challenges and explore viable options for repayment.

That’s where Talk About Debt comes in. As a leading UK debt management company, our specialists can assess your financial situation, help you understand the potential implications, and guide you through the process of finding the most suitable solution for your debts.

For help dealing with income tax debts, or some friendly financial advice, get in touch with us today.

Key Takeaways

Income tax debt must be repaid before any non-priority debts

Contact HMRC as soon as possible if you know you have fallen into income tax arrears

Failing to repay income tax debt can lead to you being visited by a debt collection agency or served with a CCJ

There are various debt solutions available if you find yourself unable to afford your council tax bill, such as an IVA

When you're dealing with income tax debt, it's important to take action promptly to prevent the situation from escalating