Watch out those working in the construction industry!
My own experience of contacting HMRC on behalf of prisoners and their tax debt is that once they know your circumstances any debt recovery proceedings are ‘stayed’ until such time that you are released from prison. This does not solve the issue of tax debt but rather ‘pushes it down the road’, and is a further problem you will encounter on release.
As I have mentioned in previous articles, where HMRC hear nothing from you they believe that they are dealing with a ‘delinquent’ taxpayer and commence proceedings accordingly.
This article focuses on tax debt over £5,000
If you owe HMRC £5,000 or more:
• You have been unable to reach an agreement with HMRC for time to pay;
• HMRC has not been able to recover the debt by other means, such as taking control of goods, or by a Court Judgment …
… then your file may be passed to the HMRC Enforcement and Insolvency Office (EIO) for bankruptcy action.
It is relatively easy to accumulate a tax debt for not filing tax returns and in many cases tax penalties form the major component of the tax debt, despite the fact there may be no tax payable or there is even a refund due. This is often the case for those in the Construction Industry, where taxpayers have failed to file their tax returns over several years.
The EIO will typically request payment of the tax debt quickly and this is usually fourteen days. By exception, the EIO will accept an arrangement for the tax to be paid by instalments although it prefers to receive a ‘lump sum’ and the balance spread over a period of months.
The EIO will usually write to say that it is commencing bankruptcy proceedings if no agreement can be reached. But what exactly does this mean?
My experience of the EIO is that they do not act like any other creditor and will often petition for bankruptcy even when there are no funds available – particularly where the taxpayer has no significant assets. I would add to this that the EIO will also pursue tax debts comprising of tax penalties even where there is clear evidence that the taxpayer has paid tax at source under the Construction Industry Scheme and would generate a tax refund if the tax returns were completed.
The Statutory Demand
The initial stage of the legal process is for the EIO to issue a statutory demand requesting payment of the outstanding tax and this is usually delivered by a third party. I have recently acted in a tax case where the EIO tried to serve papers on a prisoner whilst in prison! Although they were unsuccessful on this occasion, they served it on the prisoner immediately on release, causing a great deal of stress and anguish.
The Bankruptcy Petition
HMRC will usually issue a Bankruptcy Petition in London three weeks after the issue of the Statutory Demand detailing the tax payable. If you have been released from prison or HMRC simply do not know where you are the Court may order service in another way such as an advertisement.
The Bankruptcy Hearing
If you believe the tax position is incorrect you can apply for an adjournment to:
• Raise funds to pay the tax;
• File outstanding tax returns – particularly where HMRC have estimated the tax payable (tax determination) by HMRC;
• Raise the issue in relation to your mental health (see January 2020 article on Mental Health and Tax).
During this period of adjournment, if you are successful in your claim through the above HMRC may dismiss the petition.
However, where you are not successful HMRC will ask the Court to make an order for bankruptcy, to which in most instances the Court is likely to agree.
Where you are self-employed and made bankrupt, it is the only time that HMRC will issue a new Unique Taxpayer Reference (UTR).
Tax debt – working in construction
Prison presents the opportunity to bring your tax affairs to order, particularly if you have worked in the construction industry. My experience of tax cases I work on within the construction industry is that the tax debt has been created by the accumulation of tax penalties for not filing tax returns. The Tax Academy can assist you with filing these outstanding tax returns.
If you have tax debt, please contact Paul Retout at The Tax Academy CIC on: 01824 704535 or write to Paul Retout, The Tax Academy CIC, Unit 4 Ffordd Yr Onnen, Lon Parcwr Business Park, Ruthin, Denbighshire LL15 1NJ.