HMRC and Your IVA, Question by Question
What goes in, how HMRC decides, and the tax rules that catch people out.
Can HMRC debts be included in an IVA?
Yes, in most cases. Money you owe to HMRC, such as self-assessment income tax, National Insurance arrears, VAT, PAYE and overpaid tax credits, can usually be included in an IVA and treated alongside your other debts. Once the arrangement is approved these arrears are frozen, and any qualifying balance left at the end is written off in the same way as the rest.
Which HMRC debts can go in?
A wide range of historic arrears. These commonly include self-assessment income tax, Class 2 and 4 National Insurance, VAT, PAYE, Construction Industry Scheme deductions and overpaid tax credits. What goes in is the tax you already owe, not tax that has not yet fallen due. Debts arising from fraud are usually excluded and may survive the arrangement, so it is worth checking each one with your practitioner.
Does HMRC get a say in my IVA?
Yes. HMRC is a creditor like any other and votes on whether to accept your proposal, through a dedicated team called the Voluntary Arrangement Service. It usually aims to respond within about a week. HMRC will weigh up your offer, your disclosure and your compliance history, and it prefers to consider a proposal only once, so getting it right first time matters.
What conditions does HMRC attach?
HMRC tends to support a proposal only if certain conditions are met. It expects you to keep all future tax paid in full and on time, to have your tax returns up to date so the debt is clear, to make your best, achievable offer first time, and to disclose your finances honestly. Missing returns, or an offer it doubts, will almost always lead to rejection, so preparation is key.
Can HMRC block my IVA?
It can, if it holds enough of the vote. Because votes are weighted by debt value, HMRC can stop the 75% approval threshold being reached where it is owed a large share, particularly more than a quarter of your total debt. If most of what you owe is to HMRC and it will not agree, an IVA may not be the right route, and a free adviser can help you compare alternatives.
Are some tax debts treated differently?
Yes, and this is an important detail. Certain taxes HMRC collects on behalf of others, such as VAT, PAYE income tax, employee National Insurance and CIS deductions, are 'preferential' and normally have to be repaid in full during the IVA, even though the rest of your debt may be partly written off. Your own income tax and overpaid tax credits, by contrast, are ordinary unsecured debts that can be written down like the others.
Do I still have to pay ongoing tax?
Yes, always. An IVA only covers tax you already owe, not tax that falls due later, so you must keep paying current and future tax in full and on time. If you are employed, your tax is deducted through PAYE as normal and has nothing to do with the IVA. If you are self-employed, you need to set money aside for future tax bills, because new arrears can put the whole arrangement at risk.
What if I am self-employed or owe VAT?
There is a bit more to think about. As a self-employed person you will usually need to forecast your income and set aside enough each month for future tax. If you owe VAT, remember it is preferential and must be repaid in full within the IVA, so large VAT arrears can make the monthly payment unaffordable. Where that is the case, another solution such as bankruptcy may need to be considered, which advice will help you weigh up.
Should I get advice about HMRC debt?
Definitely. HMRC has stronger enforcement powers than almost any other creditor, and the rules around preferential tax, future liabilities and compliance make these cases more complex. A free, impartial adviser can tell you honestly whether an IVA will work with your HMRC debt, or whether something like a Time to Pay arrangement, a Debt Relief Order or bankruptcy would suit you better.
