HMRC debt: what happens, and what you can actually do
HMRC is a priority creditor with enforcement powers no other creditor has. Here is the escalation process in order, what your rights are, and how this debt is treated in each UK debt solution.
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Where this debt sits in the hierarchy
The consequence of not paying is losing something essential — your home, your supply, your goods, or in rare cases your liberty. Priority debts come before credit cards, loans, overdrafts and catalogues, however aggressive the letters from those creditors are.
What actually happens, in order
Payment deadline missed
Interest starts accruing immediately. Late payment penalties follow at set intervals.
Time to Pay
You can propose an instalment arrangement, in many cases online for self assessment debts within limits, otherwise by phone.
Enforcement
HMRC can instruct enforcement agents directly, without a court judgment.
Coding out
Debts within limits can be collected through your PAYE tax code across a tax year.
Direct recovery
In defined circumstances HMRC can take funds from bank accounts, subject to safeguards including leaving a minimum balance.
What people are not usually told
Two things. First, ring them — HMRC's Payment Support Service and Time to Pay are used successfully by very large numbers of people every year, and arrangements are far easier to obtain before enforcement starts than after. Second, if the debt arises from a self assessment estimate or a determination rather than an actual return, file the return: the debt is frequently lower than the estimate, sometimes dramatically so, and the determination is replaced.
How this debt is treated in each solution
Every formal solution handles debts differently, and this one is no exception.
| IVA | DMP | DRO | Bankruptcy | |
|---|---|---|---|---|
| Formal insolvency | Yes | No | Yes | Yes |
| Where it applies | England, Wales and Northern Ireland | The whole of the UK | England and Wales (Northern Ireland has its own version with different thresholds) | England, Wales and Northern Ireland (Scotland calls it sequestration) |
| Typical duration | 60 months, or 72 with home equity | Until the debt is repaid — no fixed end | 12 months | Discharged in 12 months; payments up to 3 years |
| Monthly payments | Monthly, affordability-based | Monthly, flexible, changeable | No payments at all | Only if you have surplus income |
| Your home | Excluded; equity sets the term | Not affected | Not available to homeowners | May be sold |
| Credit file impact | 6 years from the start date | Defaults recorded, 6 years each | 6 years from the order date | 6 years from the order |
| Public register | Listed on the public Individual Insolvency Register, which anyone can search. Your address can be withheld only on evidenced safety grounds. | Nothing public. A DMP is a private arrangement. | Listed on the public Individual Insolvency Register. | Listed on the public Individual Insolvency Register, and in some cases advertised more widely. |
| Fees | Paid from your monthly payments | Free providers available | Free — no application fee | £680 application fee |
| Creditor protection | Legally binding on included creditors | None — entirely voluntary | Full protection, then write-off | Full protection, then discharge |
Arrears existing at the start date can usually be included in a formal solution. Ongoing liabilities — this year's council tax, current rent, current energy usage — cannot be, and must be budgeted for separately.
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Common questions
Can HMRC debt be included in an IVA?
Yes, HMRC is regularly a creditor in IVAs and votes on proposals. It has published guidance on what it expects to see and takes a firm line on compliance — future returns must be filed and future liabilities paid on time. An IVA that includes HMRC and then falls behind on current tax will not survive.
Can I go bankrupt over a tax debt?
HMRC can and does petition for bankruptcy, usually for larger debts where engagement has broken down. Engaging early, filing outstanding returns and proposing a realistic Time to Pay arrangement is the effective defence against that outcome.
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