HMRC debt is money you owe to HM Revenue and Customs for unpaid tax. This includes income tax, self-assessment tax, VAT, PAYE, National Insurance, or tax credit overpayments. HMRC has stronger collection powers than normal creditors — they can take money directly from your bank account or salary without a court order.
If you owe HMRC money, contact them immediately to arrange a Time to Pay plan. If you have other debts too (totalling £6,000+), an IVA might help, but you’ll need to negotiate with HMRC separately as tax debt is treated as priority.
What Counts as HMRC Debt?#
HMRC debt includes any unpaid tax or related charges:
Income tax and self-assessment: Tax you owe on earnings if you’re self-employed, a sole trader, or have income from multiple sources.
PAYE arrears: Unpaid tax that should have been deducted from your wages. Usually happens when your employer didn’t deduct enough or HMRC adjusted your tax code.
VAT: Value Added Tax owed by businesses registered for VAT. Quarterly or monthly payments depending on turnover.
National Insurance contributions: Class 2 or Class 4 contributions if you’re self-employed, or Class 1 arrears if you’re employed.
Tax credit overpayments: If you were overpaid Working Tax Credit or Child Tax Credit, HMRC will recover it. (Tax credits are being replaced by Universal Credit, but overpayments from before the switch can still be recovered.)
Corporation tax: Tax owed by limited companies on profits.
Penalties and interest: HMRC adds penalties for late filing or late payment, plus interest on outstanding balances (currently 7.75% as of 2026).
If you owe tax, HMRC will send you a demand for payment. The letter will state how much you owe, when it’s due, and how to pay.
Why HMRC Debt Is a Priority#
HMRC debt is a priority debt because HMRC has enforcement powers that normal creditors don’t have.
HMRC can:
- Take money directly from your bank account (called Direct Recovery of Debts)
- Deduct money from your wages without a court order (called Direct Earnings Attachment)
- Take you to court for bankruptcy if you owe £5,000+
- Seize goods through bailiffs (called enforcement agents)
Most creditors need to get a CCJ before they can enforce debt. HMRC doesn’t. They can act faster and more aggressively than credit card companies, lenders, or debt collectors.
This is why you should prioritise HMRC debt over non-priority debts like credit cards, loans, or overdrafts.
What Happens If You Don’t Pay HMRC#
If you ignore HMRC debt, here’s what happens:
Week 1-4: Payment demand
HMRC sends a letter demanding payment by a specific date (usually 30 days). The letter will state how much you owe, what it’s for, and how to pay.
Week 4-8: Reminder and late payment penalty
If you don’t pay by the deadline, HMRC adds a late payment penalty (usually 5% of the outstanding amount). They send another letter with a new deadline.
Week 8-12: Final notice
HMRC sends a final notice warning they’ll take enforcement action if you don’t pay or contact them to arrange a payment plan.
After 12+ weeks: Enforcement action
HMRC can take any of the following actions:
Direct Recovery of Debts: HMRC can instruct your bank to transfer money from your account directly to them. They must leave you with at least £5,000 across all your accounts, and they’ll send you a letter 14 days before taking action.
Direct Earnings Attachment: If you’re employed, HMRC can instruct your employer to deduct money from your wages. Your employer must comply. The amount deducted depends on your income (ranging from £0 if you earn under £430/month to £870/month if you earn over £3,190/month).
Bailiffs (Enforcement Agents): HMRC can instruct bailiffs to visit your home or business to seize goods. Bailiffs can sell the goods at auction to recover the debt.
County Court Judgment: HMRC can apply for a CCJ. If granted, they can enforce it through attachment of earnings, charging orders, or third-party debt orders.
Bankruptcy: If you owe £5,000+, HMRC can apply to make you bankrupt. Bankruptcy writes off your debts, but you lose control of your assets, and it severely damages your credit for 6 years.
Time to Pay Arrangements#
If you can’t pay your tax bill in full, contact HMRC immediately and ask for a Time to Pay arrangement.
A Time to Pay (TTP) arrangement is a payment plan where you spread the debt over 3-12 months. You make monthly payments based on what you can afford.
HMRC is more likely to accept a TTP if:
- You contact them before they start enforcement action
- You’ve filed all your tax returns
- You can demonstrate you’re paying what you can afford
- You’ve made a payment (even a small amount) to show good faith
To set up a TTP:
If you owe less than £30,000: Call HMRC’s payment support service on 0300 200 3822. You can set up a plan over the phone.
If you owe more than £30,000: Call the HMRC Business Payment Support Service on 0300 200 3835. You’ll need to provide detailed financial information.
HMRC will ask about your income, expenses, and other debts. Be honest. If you try to hide income or assets, they’ll reject your plan and escalate enforcement.
Once approved, you must keep up the payments. If you miss more than one payment, HMRC can cancel the arrangement and restart enforcement action.
Can HMRC Debt Be Included in an IVA?#
Yes, but it’s complicated.
HMRC is a creditor like any other, so technically HMRC debt can be included in an IVA. But HMRC is known for being difficult in IVA proposals.
HMRC often votes against IVA proposals if:
- Tax debt makes up a large portion of the total debt
- You’re still self-employed and generating new tax liabilities
- They think you can afford to repay more than the IVA offers
If HMRC holds more than 25% of your total debt, they can block your IVA proposal even if other creditors vote in favour.
But if you have multiple debts (HMRC debt plus credit cards, loans, overdrafts) totalling £6,000+, an IVA might still be suitable. Your Insolvency Practitioner will negotiate with HMRC on your behalf.
For example:
- You owe £8,000 to HMRC in self-assessment tax
- You also owe £14,000 on credit cards and loans
- Total debt: £22,000
- You enter an IVA and pay £250/month for 5 years
- Total paid: £15,000
- Remaining £7,000 is written off (including part of the HMRC debt)
Check if you qualify using our free IVA calculator.
Can HMRC Debt Be Included in a Debt Relief Order?#
Yes, if you meet the eligibility criteria.
A DRO is suitable if you have:
- Less than £50,000 total debt (including HMRC debt)
- Less than £75/month spare income after essential expenses
- Less than £2,000 worth of assets
A DRO lasts 12 months, then all included debts (including HMRC) are written off. It’s free to apply (as of April 2024).
HMRC can’t object to a DRO once it’s approved. But you need to meet the strict eligibility criteria.
What If You’re Self-Employed?#
If you’re self-employed and owe HMRC money, you’re at higher risk of ongoing tax problems.
Self-employed people pay tax through self-assessment. You submit a tax return each year, and HMRC calculates how much you owe. Payments are due on 31 January (for the previous tax year) and 31 July (payment on account for the current tax year).
If you’re struggling to pay one year’s tax bill, you’ll likely struggle the next year too. This is why HMRC is often reluctant to agree to IVAs for self-employed people — they see it as a temporary fix that doesn’t address the underlying problem.
Options:
Time to Pay arrangement: Spread this year’s tax bill over 3-12 months while keeping up with ongoing payments.
Pay on account reduction: If your income has dropped significantly, you can apply to reduce your payment on account (the advance payment for next year’s tax).
Change your business structure: If you’re a sole trader struggling with tax, consider switching to a limited company. Corporation tax is paid differently and might be easier to manage.
Get an accountant: If you’re not keeping proper records, hire an accountant to sort out your books and submit accurate tax returns. It costs money upfront but saves you from penalties and errors.
Can HMRC Make You Bankrupt?#
Yes, if you owe £5,000 or more.
HMRC can apply to make you bankrupt without getting a CCJ first. This is one of their strongest enforcement powers.
Bankruptcy writes off your debts within 12 months, but the consequences are severe:
- You lose control of your assets (house, car, savings)
- Your house might be sold to pay creditors (if you have significant equity)
- It affects certain jobs (finance, law, insolvency)
- It stays on your credit file for 6 years
- You can’t be a company director
HMRC won’t make you bankrupt without warning. They’ll send multiple letters threatening bankruptcy before they apply. If you receive a statutory demand (a formal demand for payment), you have 21 days to pay or respond before HMRC can start bankruptcy proceedings.
If you’re facing bankruptcy, get debt advice immediately. An IVA or DRO might be a better option.
What If Your HMRC Bill Is Wrong?#
HMRC makes mistakes. If you think your tax bill is incorrect, challenge it immediately.
Common errors:
- Wrong tax code applied to your PAYE
- Income or expenses recorded incorrectly
- Penalties added when you filed on time
- Overpayment already repaid but still showing as owed
- Tax calculated on income you didn’t receive
To challenge:
- Call HMRC on 0300 200 3300 (general enquiries) or the specific helpline for your type of tax.
- Explain why you think the bill is wrong and provide evidence (payslips, bank statements, receipts).
- HMRC will review your case and either correct the bill or explain why it’s correct.
If you’re still not satisfied, you can:
- Request a formal review by a different HMRC officer
- Complain to HMRC’s complaints team
- Appeal to an independent tax tribunal
While you’re challenging, keep paying what you think you owe. If you stop paying entirely and it turns out HMRC was right, you’ll face penalties and enforcement action.
HMRC Debt vs Other Debts: Which to Pay First?#
If you owe HMRC plus other creditors, prioritise HMRC.
Priority debts (pay first):
- HMRC debt
- Rent or mortgage
- Council tax
- Utility bills (gas, electric, water)
- Court fines
- Child maintenance
Non-priority debts (pay after essentials):
- Credit cards
- Personal loans
- Overdrafts
- Mobile phone contracts
- Catalog debt
If you can’t afford to pay everything, pay the priority debts first. HMRC has stronger enforcement powers than credit card companies or debt collectors.
What If You Have HMRC Debt Plus Other Debts?#
If you’re struggling with HMRC arrears and other debts totalling £6,000+, consider a formal debt solution:
IVA: Write off remaining debt after 5-6 years. HMRC can be included, but they’re often difficult creditors. Your IP will negotiate on your behalf.
DRO: Free to apply, writes off debts after 12 months. HMRC debt can be included if you meet the strict eligibility criteria (under £50k debt, under £75/month spare income, under £2k assets).
Debt Management Plan: Informal agreement to pay creditors reduced monthly payments. HMRC can be included, but they might refuse and pursue enforcement anyway.
Bankruptcy: Writes off debts within 12 months, but you lose control of assets. Consider this only if other options aren’t suitable.
Get free debt advice from StepChange, National Debtline, or Business Debtline (if you’re self-employed) to work out the best solution.
Can You Go to Prison for HMRC Debt?#
No, not for simply owing money. HMRC debt is a civil matter, not criminal.
But you can be prosecuted (and potentially imprisoned) for:
- Tax evasion: Deliberately hiding income or lying on tax returns to avoid paying tax.
- Fraud: Submitting false claims (e.g., fraudulent VAT refund claims).
- Failure to file returns: Repeatedly ignoring legal requirements to file tax returns.
If HMRC suspects deliberate tax evasion, they’ll investigate. If they find evidence of fraud, they can prosecute. Penalties range from fines to prison sentences (up to 7 years for serious cases).
But if you’re struggling to pay tax because you can’t afford it (not because you’re hiding income), you won’t go to prison. HMRC will pursue civil enforcement (Time to Pay, bankruptcy, etc.).
If you’re struggling with debt and want to find out what options are available, use our free IVA calculator to see if you qualify and how much debt you could write off. It takes 2 minutes and won’t affect your credit score.
Frequently Asked Questions#
Can HMRC take money from my bank account without warning?#
They must give you 14 days’ notice before using Direct Recovery of Debts. They’ll send a letter explaining how much they’ll take and when. They must leave you with at least £5,000 across all your accounts. But they don’t need a court order.
What if I can’t afford a Time to Pay arrangement?#
Contact HMRC and explain your situation. Provide a detailed budget showing your income and essential expenses. They might accept lower payments or suggest alternative solutions. If you have other debts, consider an IVA or DRO.
Will HMRC write off my debt?#
In very rare cases, HMRC might write off debt if you’re in severe financial hardship with no prospect of ever repaying. But they’re much less likely to write off debt than normal creditors. They’ll usually pursue enforcement instead.
Can I include HMRC debt in an IVA if I’m still self-employed?#
Yes, but HMRC might vote against your proposal if they think you’ll continue generating new tax debts. Your IP will need to demonstrate you can keep up with future tax payments while repaying the IVA.
What happens to HMRC debt if I go bankrupt?#
It’s written off along with your other unsecured debts. But you’ll lose control of your assets, and bankruptcy has serious long-term consequences. Consider an IVA or DRO first.
Can HMRC debt become statute-barred?#
No. HMRC debt doesn’t become statute-barred in the same way as normal debts. HMRC can pursue tax debt indefinitely. There’s no 6-year time limit like there is for credit cards or loans.
If you’re struggling with HMRC debt and other debts, use our free IVA calculator to see if you qualify and how much debt you could write off. It takes 2 minutes and won’t affect your credit score.