Can tax debt be included in a debt management plan
It is not normally possible to include tax debt owed to HMRC in a debt management plan. You may have to pay it separately or use a different debt solution.
Included in this article:
- Is it possible to add tax debt to a debt management plan?
- Can you leave tax debt out of your plan?
- Alternative options for dealing with HMRC debt
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Is it possible to add tax debt to a debt management plan?
Tax debts owed to HMRC are classed as unsecured. In theory therefore, you should be able to include them in a debt management plan (DMP). However this is not normally the case.
The main reason for this is the length of time your Plan is likely to last. Generally speaking, it will be 5-10 years. This will not be acceptable to the tax man.
HMRC normally requires any debt owed to them to be repaid within 18-24 months. They are likely to reject any proposal where it will take longer.
As a result, if you try to include your tax debt in a DMP, HMRC will probably reject the payment offer and continue to take enforcement action against you.
HMRC will usually reject a DMP payment proposal if their debt is not paid in full with 18-24 months. They will continue to take enforcement action such as applying for a CCJ or making you bankrupt.
Can you leave tax debt out of your Plan?
If you owe money to HMRC, you are allowed to leave it out of your debt management plan. Because it is a flexible solution, you can pay this debt separately.
The way you do this is first, negotiate a time to pay agreement directly with HMRC for the repayment of the money you owe them.
Remember, negotiating with the tax man will involve paying them a sufficient amount each month to ensure their debt to be repaid within a timescale they will agree with.
Once you have this agreement in place, you can then set up a DMP with your other creditors.
The downside of this strategy is your DMP payment will have to be based on whatever surplus income you have left after the agreed payment to HMRC. As such, it will only work if you can afford to pay both your the tax debt in full within 18-24 months and a reasonable amount into your DMP.
Leaving tax debt out of a debt management plan and paying it separately is allowed. However, if you don’t have sufficient funds to pay both, you will need to consider a different debt solution.
Alternative options to deal with HMRC debt
You may not have sufficient funds to pay both your HMRC debt and make a reasonable payment into a debt management plan to cover your other debts. If this is the case, it is probably not a sensible solution for you and you will need to use an alternative.
If you have tax debt, the main options open to you are either an IVA (Individual Voluntary Arrangement) or going bankrupt. Money owed to HMRC is included and written off in both of these solutions.
The solution you choose is likely to be mainly influenced by whether or not you are a home owner. If you have a property with equity, you may need to avoid going bankrupt.
Remember, the tax debt problem you have with HMRC can’t be left unresolved. If it is not dealt with, they could end up making you bankrupt. As such it is best to take action as soon as you can to manage this debt.
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