Tax and benefit debts
Owing money to HMRC or the benefits system can feel especially daunting. Here’s how it usually works, and where you could start.
What these debts are
A tax debt is money owed to HMRC, for example from self-assessment, VAT or income tax. A benefit debt usually comes from an overpayment, or from an advance you have to repay.
These are usually treated as priority debts, because the government has strong powers to collect them. An overpayment isn’t always your fault, and it may be possible to challenge it.
What can happen
Tax and benefits work differently.
Payments taken from benefits
A benefit overpayment may be taken back from your ongoing benefit. The amount is usually limited, and you can ask for it to be reviewed.
Changes to your tax code
HMRC may collect a tax debt through your wages by changing your tax code. You may notice less in your pay.
Stronger collection steps
If a tax debt isn’t dealt with, HMRC has further powers. In some cases that includes taking money directly from a bank account, with safeguards in place.
Penalties and interest
Late tax may carry penalties and interest, so the amount can grow if it isn’t dealt with.
What you can do now
Check the figure
Ask for a breakdown of what is owed, for which period and why. If you think a benefit overpayment is wrong, you can ask for it to be looked at again.
Contact HMRC or the benefit office early
Say you are struggling. HMRC may agree to spread a tax bill, and benefit departments may agree smaller deductions, though they don’t have to.
Keep the deadlines
Replies to letters, appeals and tax returns all have deadlines. Missing them can make the debt bigger or limit your options.
Work out what you can afford
Add up your income and essential costs, so any arrangement you offer is one you can keep up.
Check for support you could claim
A benefits check may show you are entitled to more, which could help with repayments.
When to get help
Speak to an adviser if you’re unsure an overpayment is correct, deductions leave you too little to live on, or a tax debt is one of several you’re behind with.
Signs it may be time to talk to someone
- You have received a notice about a tax or benefit debt.
- Deductions from your benefit leave you struggling.
- You think the amount is wrong.
- You owe tax and other debts at the same time.
Free, impartial advice is available from MoneyHelper, StepChange and National Debtline. MoneyHelper
General information, not advice. Rules can differ in Scotland and Northern Ireland.
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