The collection of tax is a key component of the tax system, writes Seamus McCaffrey, Accountant from Omagh in his column this month.

Tax debt is unlike any other type of debt. The worst thing a taxpayer can do is to ignore tax debt. Generally, tax debt never goes out of time, as there no statute bar for tax debt; there are statutory deadlines for assessments, but not collection of tax. HMRC Debt Management and Banking Unit (DMB) want to see action being taken to address a tax debt, for them, silence is the worst situation, as they have no idea of the cause, they must work on the basis that the taxpayer is simply ignoring them and act accordingly.

The DMB follows a debt collection process which escalates over time. A tax debt will proceed through that process with consequential actions increasing over time. Until it is resolved the best that a taxpayer can expect is that the process is temporarily paused, but the DMB expects that during that time everything is being done to address the matter. Provided DMB can see progress, it is usually willing to allow time to do so.

The speed that DMB accelerates its collection process will vary on the nature of the tax being assessed. In general, where the taxpayer has collected the tax from other people e.g. PAYE and VAT, HMRC is far less sympathetic with kits collection, it considers that it was never the taxpayer’s money in the first place.

The first question is the tax debt enforceable. To be enforceable, there must be a formal assessment, and HMRC may need to do something to create a legally enforceable debt. HMRC’s attitude to informal assessment is much more flexible, as they are not bound by the legal process. It is always better to speak to HMRC before the formal assessment process has begun.

Secondly, can anything be done to reduce the liability for example, profit averaging; revising Capital Allowances Claims; Change of Accounting Date; revisiting Loss Relief Claims. If the tax liability has arisen from an error on Tax Return are, we within time to file an amendment or to claim over payment relief, both have strict time limits. Where the amount sought by DMB includes an individual’s payment on account for the current year, it may be possible to reduce them. If the liability includes penalties, it may be possible to appeal these.

Thirdly, it is important to where DMB is in its collection process in order to understand how much time is available. HMRC’s collection policy has a number of steps: statements of account; letters; Debt collection agencies; Distraint. Distraint involves HMRC visiting the business premises and listing assets which cannot be sold until the debt with HMRC is paid.

When the debt is finally agreed, it is possible to agree a Time to Pay arrangement with HMRC.

In the current uncertain economic climate regular contact with the farm accountant, cash flow management and daily monitoring the farm bank account are necessary.