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Can a Tax Debt be Written Off? 

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Scott Nelson

Managing Director

MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.

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Janine
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Janine Marsh

Financial Expert

Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.

Learn more about Janine
· Feb 7th, 2024
Could you legally write off some debt? Answer below to get started.

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For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

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Can Tax Debt Be Written Off

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

Are you worried about how to handle your tax debt? We know this can be a hard worry to carry. Every month, over 170,000 people like you turn to us for advice on their debts.

In this friendly guide, we’ll give simple, clear advice on:

  • The different types of tax debt.
  • What to do if you owe money to HMRC.
  • How you might be able to write off some debt.
  • Ways to clear your tax debt.
  • If having a tax bill can affect your credit rating.

We know how stressful dealing with debt can be, and we’re here to help. We’ll guide you through your options and explain how your tax debt might be written off. We’ll also tell you what happens if you owe money to HMRC and talk about whether this can make your credit rating worse. We’re here to make things easier for you.

Let’s get started and discuss your options.

Could you legally write off some debt?

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out.

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

Common types of tax debt

#1: Income tax debt

Income tax debt is when an individual has not paid enough income tax throughout the year based on their employment income. PAYE workers avoid these debts because tax is taken directly from their pay; they are more likely to be owed money back. But those who complete self-assessments, such as sole traders, may not budget for tax time and struggle to keep up with their tax payments. 

#2: Council tax debt

Council tax is the payment to your local authority for the upkeep of the local area and for a range of essential services, such as the fire brigade. You can get into council tax arrears if you fail to keep up with payments or wrongfully claim a council tax reduction. It’s possible to adjust your payment frequency to help you budget if needed.  

#3: Tax credits debt

Tax credits can refer to either Child Tax Credits or Working Tax Credits, a type of benefit payment to people with children or for lower-income households, respectively. If you do not keep your details up to date, you can be hit with a repayment letter from the UK Government. Many people get told they have been overpaid and need to repay a large amount quickly. 

#4: Business tax debts

Business tax debts relate to any debt that the business owes to HMRC, which may be due to not paying enough VAT, commercial tax, NI contributions and fines. When there is a business tax debt, it is the company that is liable for the debt, rather than individuals, hence the term ‘limited liability company’. 

What happens if you owe HMRC money?

HMRC will usually write to you asking for payment if you have tax debts or received tax credit overpayments. If you do not make a full payment in the timeframe given, HMRC can apply charges and interest to the debt. The charges and penalties you could face will depend on the type of tax debt you have. 

If you still do not pay your tax debt, HMRC will pass your details to a debt collection company, which will chase you for payment or threaten legal action that can lead to bailiffs. If your tax debt is due to tax evasion, you could face an unlimited fine or up to seven years in prison. 

You can read about the full HMRC debt collection process in this guide

The process of recovering business debts is different. HMRC can use enforcement action (bailiffs) without going to the courts first and even close your business. Enforcement agents working on behalf of HMRC will seize business goods to sell and clear the debt. 

How a debt solution could help

Some debt solutions can:

  1. Stop nasty calls from creditors
  2. Freeze interest and charges
  3. Reduce your monthly payments

A few debt solutions can even result in writing off some of your debt.

Here’s an example:


Situation

Monthly income £2,504
Monthly expenses £2,345
Total debt £32,049

Monthly debt repayments

Before £587
After £158

£429 reduction in monthly payments

If you want to learn what debt solutions are available to you, click the button below to get started.

Get started

How do I clear my tax debt?

You can clear your HMRC debt by making a full payment when requested. If you cannot make a full payment, you may be able to arrange a payment plan with HMRC. This will allow you to gradually pay off the tax debt in monthly instalments until it has been cleared. 

Does HMRC debt affect credit rating?

HMRC debts do not appear on or affect your credit report. HMRC debts are due to tax or overpayments and are therefore not a source of credit. As such, these types of debts are not visible on your credit file. 

Can a tax bill be written off?

HMRC tax debts are not subject to The Limitations Act and are therefore never too old to be collected. As such, personal HMRC debts cannot be written off. Some company HMRC debts can get written off if the company has no conceivable way to pay, but this will prevent the business owner from starting another company. 

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Can you get council tax debt written off?

Council tax debts do have a limitation period and can be written off after six years. If you have not made a payment towards council tax arrears or acknowledged the debt for six years, the council can no longer ask for you to pay. In Scotland, the limitation period for council tax debt is 20 years

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Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.

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How do I write off my HMRC debt?

Unfortunately, it is not possible to write off personal HMRC debt because the limitations period does not apply to these debts. 

Lots of people search “how to get a tax debt written off” online and are disappointed by the answer. 

Want to know more about tax debts?

We get it – you have more questions about council tax and HMRC debts in the UK. That’s why we have written other articles discussing tax debts in the UK and how to handle them. We hope you found the information you needed in this ‘can you get tax debt written off’ post. Scroll our blog now for further tax help guides. 

Could you legally write off some debt?

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

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The authors
Scott Nelson Profile Picture
Author
MoneyNerd’s founder, Scott Nelson, has a decade of financial industry experience, including 6 years in FCA regulated loan and credit card companies. Troubled by a lack of conscience in the industry, he founded MoneyNerd to give genuine advice to those in debt and struggling financially.
Janine Marsh Profile Picture
Debt Expert
Janine Marsh is an award-winning presenter and a valuable member of the MoneyNerd team. With a wealth of experience as a financial expert, she's been featured on BBC Radio 4, BBC Local Radio, and BBC Five Live, and is a regular on Co-op Radio.