HMRC debt recovery

[creativity]

Just a thank you to all those who are contributing to this and other threads. It's very much appreciated by all of us affected.

[ContrataxLtd]

Thank you for this explanation which has added considerably to my knowledge.

I'll look again at the weekend and may pick your brains some more if I could?

Yes no problem at all, I'll hopefully be reviewing this further later on in the week so should be more up to speed once I have done.

Cheers

Martin
Contratax Ltd

[Rob79]

Hi Rob

I've not fully digested all the changes as yet but the way I understand it is that HMRC can collect tax debts (not PAYE underpayments or Self Assessment balancing payments) of up to £17k pa if the primary source of income is £90k pa or more. There is a £3,000 maximum collection from incomes of less than £30k and a graduated scale between £30k & £90k, with an extra £2k collection permitted for every £10k more income. This is a banded scale though not a sliding scale as I understand it as follows:

Earnings p/a £          <30K     30-40K     40-50K     50-60K     60-70K     70-80K     80-90K     >90K
Coding limit £            3K         5K         7K         9K        11K        13K        15K      17K

Thus, in your example of £6k per month (£72k pa) HMRC could collect up to £13k per annum via the tax code. The net pay for £6k per month is £4,075 (assuming standard codes etc.) so HMRC could then take a further £1,083 out of this in additional tax per month to collect the outstanding tax debt.

This is due to come it to effect from April 2015.

This is all how I understand it on first reading and I will need to digest it further before completely understanding the changes but hopefully the above can be used to give an idea of how this will work in practice but if you think this applies to you (take anyone reading this) then please get professional advice as to exactly how it will apply give your specific situation.

Martin
Contratax Ltd

Thank you for this explanation which has added considerably to my knowledge.

I'll look again at the weekend and may pick your brains some more if I could?

[ContrataxLtd]

There is no equity in tax and no comfort to be derived from logic or natural justice.

My understanding is that if your gross salary is say £6,000 a month and your net £4,000 a month (I've not calculated the tax/NI as a bit busy), then HMRC under a sequestration order may take a maximum of £17k x £72/90/12 = £1.133k, leaving net take home £2.867k.

This is not an area in which I have any practical experience and hence I'm guessing at the result from first principles. I'll look in more detail over the weekend.

Hi Rob

I've not fully digested all the changes as yet but the way I understand it is that HMRC can collect tax debts (not PAYE underpayments or Self Assessment balancing payments) of up to £17k pa if the primary source of income is £90k pa or more. There is a £3,000 maximum collection from incomes of less than £30k and a graduated scale between £30k & £90k, with an extra £2k collection permitted for every £10k more income. This is a banded scale though not a sliding scale as I understand it as follows:

Earnings p/a £          <30K     30-40K     40-50K     50-60K     60-70K     70-80K     80-90K     >90K
Coding limit £            3K         5K         7K         9K        11K        13K        15K      17K

Thus, in your example of £6k per month (£72k pa) HMRC could collect up to £13k per annum via the tax code. The net pay for £6k per month is £4,075 (assuming standard codes etc.) so HMRC could then take a further £1,083 out of this in additional tax per month to collect the outstanding tax debt.

This is due to come it to effect from April 2015.

This is all how I understand it on first reading and I will need to digest it further before completely understanding the changes but hopefully the above can be used to give an idea of how this will work in practice but if you think this applies to you (take anyone reading this) then please get professional advice as to exactly how it will apply give your specific situation.

Martin
Contratax Ltd

[dangerouswhensober]

There is no equity in tax and no comfort to be derived from logic or natural justice.

My understanding is that if your gross salary is say £6,000 a month and your net £4,000 a month (I've not calculated the tax/NI as a bit busy), then HMRC under a sequestration order may take a maximum of £17k x £72/90/12 = £1.133k, leaving net take home £2.867k.

This is not an area in which I have any practical experience and hence I'm guessing at the result from first principles. I'll look in more detail over the weekend.

Once again - thanks very much Rob.

(That looks suspiciously like a net deduction. And a drop of almost 30% in take-home pay - easily enough to cause severe hardship in a lot of cases, I would have thought).

[Rob79]

Are these salary attachment amounts (£3000 old limit, and £17000 from this month) gross or net ?

If gross, someone currently earning £90,000 would lose (approximately) £ 850 net per month (60% of 17000/12) on his/her current take-home pay (at current 40% top rate of tax).

If net, the same person would lose £ 1416 per month (17000/12) on current take-home.

One other observation:

If the salary sequestrations are gross, then HMRC aren't actually gaining an extra £17000 per year - because they would have raked in 40% of this anyway (in tax) without the sequestration.

And if the salary sequestrations are net, the taxpayer is re-paying tax out of already-taxed income - surely not equitable.

There is no equity in tax and no comfort to be derived from logic or natural justice.

My understanding is that if your gross salary is say £6,000 a month and your net £4,000 a month (I've not calculated the tax/NI as a bit busy), then HMRC under a sequestration order may take a maximum of £17k x £72/90/12 = £1.133k, leaving net take home £2.867k.

This is not an area in which I have any practical experience and hence I'm guessing at the result from first principles. I'll look in more detail over the weekend.

[dangerouswhensober]

No. the limit is £17k per annum.

They might remove £1500 a month for 11 months and £500 in month 12.

More likely, given the mechanics of tax codes, that it would be a maximum of £17k x 50k/90k.

Like all tax matters, it depends on the circumstances.

Are these salary attachment amounts (£3000 old limit, and £17000 from this month) gross or net ?

If gross, someone currently earning £90,000 would lose (approximately) £ 850 net per month (60% of 17000/12) on his/her current take-home pay (at current 40% top rate of tax).

If net, the same person would lose £ 1416 per month (17000/12) on current take-home.

One other observation:

If the salary sequestrations are gross, then HMRC aren't actually gaining an extra £17000 per year - because they would have raked in 40% of this anyway (in tax) without the sequestration.

And if the salary sequestrations are net, the taxpayer is re-paying tax out of already-taxed income - surely not equitable.

[Rob79]

in the end - would it be fair to say the HMRC want the money and will be, as far as possible, will try and get this without sequestration or bankruptcy?

I wish I knew.

So far the only policy decision on debt recovery that HMRC will admit to is that they have no policy that they're willing to share.

I have a meeting with HMRC tomorrow and this subject is on the agenda. I'm not expecting clarity but I'll try to winkle out some more information.

[jbryce]

Second part of this thread is some information I have garnered on bankruptcy and IVA.

Bankruptcy for individuals is a drastic step and will destroy your credit rating and leave you unable to work in certain jobs (finance, public services, local Government perhaps) for a long time. HMRC can object to a bankruptcy and instead opt to the sequestration route. It's expensive. The Government gets the first slice of assets (around 15%) and they can force the sale of assets (although they tend not to).

An Individual Voluntary Agreement (IVA) is less draconian in its effect on credit scores etc and has no payment to the Government. Most IVA's last around 3 years. The process is to value assets using the lowest of values and the maximum of share for costs, spouses etc. The resultant net asset position will promise creditors a share of their debt. That can then usually be arranged to be paid over 3 years or perhaps more.

A transfer of assets to a spouse or family member can be ignored even if this has taken place for genuine non financial reasons several years ago. An asset transfer in the months leading up to an expected demand is a no brainer to be ignored.

Entering an IVA BEFORE there is a provable HMRC debt, but which is contingent, allows that debt to be valued at £1 and as such HMRC are no longer perhaps the major creditor and their ability to block or deflect an IVA, or demand the lion's share, is diminished.

The above is a very condensed version of a 90 minute meeting. Like all other matters financial and tax, if you are contemplating this route - GET PROFESSIONAL ADVICE FIRST.

None of you know me or my capabilities. I will say that I have NEVER dealt with placing an individual into bankruptcy or negotiating an IVA. Therefore the notes above, whilst I believe them to be accurate, cannot be relied upon and I take no responsibility for the consequences if you do.

GET PROPER ADVICE.

I hope however that the above gives you a flavour of the position.

in the end - would it be fair to say the HMRC want the money and will be, as far as possible, will try and get this without sequestration or bankruptcy?

[Rob79]

Second part of this thread is some information I have garnered on bankruptcy and IVA.

Bankruptcy for individuals is a drastic step and will destroy your credit rating and leave you unable to work in certain jobs (finance, public services, local Government perhaps) for a long time. HMRC can object to a bankruptcy and instead opt to the sequestration route. It's expensive. The Government gets the first slice of assets (around 15%) and they can force the sale of assets (although they tend not to).

An Individual Voluntary Agreement (IVA) is less draconian in its effect on credit scores etc and has no payment to the Government. Most IVA's last around 3 years. The process is to value assets using the lowest of values and the maximum of share for costs, spouses etc. The resultant net asset position will promise creditors a share of their debt. That can then usually be arranged to be paid over 3 years or perhaps more.

A transfer of assets to a spouse or family member can be ignored even if this has taken place for genuine non financial reasons several years ago. An asset transfer in the months leading up to an expected demand is a no brainer to be ignored.

Entering an IVA BEFORE there is a provable HMRC debt, but which is contingent, allows that debt to be valued at £1 and as such HMRC are no longer perhaps the major creditor and their ability to block or deflect an IVA, or demand the lion's share, is diminished.

The above is a very condensed version of a 90 minute meeting. Like all other matters financial and tax, if you are contemplating this route - GET PROFESSIONAL ADVICE FIRST.

None of you know me or my capabilities. I will say that I have NEVER dealt with placing an individual into bankruptcy or negotiating an IVA. Therefore the notes above, whilst I believe them to be accurate, cannot be relied upon and I take no responsibility for the consequences if you do.

GET PROPER ADVICE.

I hope however that the above gives you a flavour of the position.

[Rob79]

I would be interested to know how this might work (in future) in the case of the many contractors who work through their own small Limited companies.

Currently, the favoured way to (marginally) increase take-home pay is to draw a reasonable amount in salary and pay appropriate tax & NI on that amount, then distribute (to oneself) the remainder in dividends, again paying appropriate tax.

Given that the new collection powers are being geared to salary, at first sight it would make sense to draw the minimum in salary and the maximum in dividends.

Have HMRC already implemented a counter to this (I would be surprised if not ...)

Don't know.

In theory these rules (originally intended to recoup tax benefits paid in error) can operate on ANY PAYE scheme.

[dangerouswhensober]

So if one earns 50k (£3,011.81 a month) they can remove £1500+ of my pay packet? That's 18k and would appear to contradict the 17k limit for over 90K earners

I would be interested to know how this might work (in future) in the case of the many contractors who work through their own small Limited companies.

Currently, the favoured way to (marginally) increase take-home pay is to draw a reasonable amount in salary and pay appropriate tax & NI on that amount, then distribute (to oneself) the remainder in dividends, again paying appropriate tax.

Given that the new collection powers are being geared to salary, at first sight it would make sense to draw the minimum in salary and the maximum in dividends.

Have HMRC already implemented a counter to this (I would be surprised if not ...)

[Rob79]

So if one earns 50k (£3,011.81 a month) they can remove £1500+ of my pay packet? That's 18k and would appear to contradict the 17k limit for over 90K earners

No. the limit is £17k per annum.

They might remove £1500 a month for 11 months and £500 in month 12.

More likely, given the mechanics of tax codes, that it would be a maximum of £17k x 50k/90k.

Like all tax matters, it depends on the circumstances.

[jbryce]

http://www.legislation.gov.uk/uksi/2...0142438_en.pdf

There is a lot of debate on various threads regarding bankruptcy, Voluntary Arrangements, etc.

I think it might be a good idea to consolidate thoughts here.

As an opener please see the above. This allows HMRC to sequestrate (remove) money from salary BEFORE you receive it. In other words the employer acts as unpaid debt collector.

This used to be used mainly for low level debt of up to £3k a year. From 3rd October, it can be used to collect £17k a year if your earnings exceed £90k. Earnings of less than that can have no more than 50% removed for tax debt.

I've previously mentioned this in connection with ideas about bankruptcy etc. I have more information on that which I will post later.

So if one earns 50k (£3,011.81 a month) they can remove £1500+ of my pay packet? That's 18k and would appear to contradict the 17k limit for over 90K earners

[Rob79]

http://www.legislation.gov.uk/uksi/2...0142438_en.pdf

There is a lot of debate on various threads regarding bankruptcy, Voluntary Arrangements, etc.

I think it might be a good idea to consolidate thoughts here.

As an opener please see the above. This allows HMRC to sequestrate (remove) money from salary BEFORE you receive it. In other words the employer acts as unpaid debt collector.

This used to be used mainly for low level debt of up to £3k a year. From 3rd October, it can be used to collect £17k a year if your earnings exceed £90k. Earnings of less than that can have no more than 50% removed for tax debt.

I've previously mentioned this in connection with ideas about bankruptcy etc. I have more information on that which I will post later.