With the deadline for self assessment tax returns due in late January, we believe that if you can include an unexpected tax bill on a plan of debt management that you have already in operation.
A plan of debt management (DMP) can be a good solution for managing the debts you can not pay. However, if you are already in a DMP, the addition of any new debt for the plan always cause a problem.
This is because the amount you can pay all your creditors have to be shared between more debt. The amount you receive each creditor therefore be reduced and it is likely that the plan will have to be renegotiated with each.
During this time, creditors may start to add interest to their accounts once more if this had been previously frozen.
HMRC issues
If you receive a tax bill that this could cause additional problems. The problem with the inclusion of HM Revenue and Customs (HMRC) in a debt management plan is that the amount you receive each month, since the plan is usually very small. HMRC often require higher payments for the debts are paid within 12 months.
HMRC can also often be nervous if you are already delinquent on their tax payments and what is left to manage their own affairs, which will not be able to pay tax bills payable in the future.
If you are already enrolled in a DMP and receive an additional tax liability or incidental, can therefore be a better option to negotiate a payment plan with HMRC itself out of its main DMP agreement.
Of course the problem with this is that you will be able to make a payment to income is acceptable, but also leaves enough money available each month to keep your payments current DMP. This may not be easy or even possible at all.
The alternative tax
If the total amount of debt you have including the HMRC is over £ 15,000, a better option to consider may be an individual voluntary arrangement (IVA).
An IVA gives you a significant advantage over a management plan in the sense that not all debt has to be returned. An IVA allows you to pay all you can afford to your creditors over five years. At the end of this period, any outstanding debt is written off.
HMRC are in favor of URI. This is because the IVA is a legally binding formal solution and its finances are formally under the supervision of an insolvency practitioner. HMRC therefore have a degree of confidence not only be resolved back taxes, but also future tax bills will be budgeted and paid on time.
Review your choices
If you owe taxes that are struggling to pay, there is no reason not to talk to HMRC and request that let you pay what you owe in installments. However, if you are already in a plan of debt management, including a new tax liability in the existing plan could cause problems.
Adding new debt to your plan means that a renegotiation will be carried out with each creditor, as all are paid far less. This may cause some or all creditors to reset their interest rates. Furthermore, there is no guarantee that HMRC would agree with the proposed payment through the plan.
As such, whenever possible usually sensitive to consider moving to a more formal agreement, as an individual voluntary agreement. HMRC are in favor of URI and it is likely that you will be debt free in a much shorter time.