How to negotiate with HMRC over a tax debt

In the past, inspectors at Her Majesty’s Revenue & Customs (HMRC) were given considerable discretion when assisting small business taxpayers who have struggled with paying VAT or PAYE. 

However, this has changed considerably over recent years as inspectors do not currently have sufficient authority to resolve conflicts.

If your startup receives threatening letters from the HMRC, it is possible to attain a negotiation deal where payment plans are installed and debts minimised. Here are a few helpful suggestions if ever you need to negotiate with HMRC over tax debt.

1. Extend the period of time to clear the debt

Organise a face-to-face meeting with an inspector in order to arrange a longer time period to clear your debt. 

It is advisable to prepare as much as possible for this meeting. Start by collecting all documents that might be relevant, including tax debt forms and proof of extenuating circumstances. 

If you are unable to organise a sit-down meeting with them, call them up and speak to an inspector over the phone.

2. Work out a payment plan

Sort out a payment agreement for debt that your business owes. You and the HMRC need to come to a decision on how much debt there is to be paid back. From there, both parties can decide on a realistic period of time in which the start up can pay back. 

A few factors are in play here: there are future tax payments to take into account as well as other potential future financial concerns that need to be calculated into the time period.

Read about more ways to deal with the taxman:

HMRC stepping up tax pressure on SMEs

Tips for dealing with the taxman

How to make sure your business doesn’t lose sight of how to comply with HMRC

If there are any tax debt errors made on the account of the HMRC, make sure to mention them in your meeting. Your business will not be held accountable for its reconciliation. You need to provide documentation to illustrate any discrepancy.

3. Finally, negotiate 

This is your plan B if a payment plan can’t be arranged. 

Prepare for any in-depth questions about your business. This could be questions regarding legal organisations, the company’s current funding status or matters concerning past tax debt. 

They are going to ask as much about your company as possible, but remember that if they ask you anything that is off-topic, you are within your rights to choose not to answer.

Remember that tax collectors are advised to treat each organisation fairly: no two businesses are the same. HMRC is only able to act based on the information they are given, so be sure not to withhold important facts.

Chris Weston is director of Milton Keynes-based Aston Black Accountants.

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