Does HMRC Debt Affect Credit Rating? Quick Answer (2024)

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Are you worried about HMRC debts? Are you wondering if these debts can impact your credit score? You’ve come to the right place for answers.

Each month, over 170,000 people visit our website seeking advice on debt matters, just like this one. We understand your concerns, and we’re here to help.

In this article, we’ll explore:

• What HMRC debt is and how it works
• How you can manage and pay your HMRC debt
• If HMRC debt can affect your credit rating
• The possibility of writing off some of your debt
• How HMRC may take money from your pay

Our team is well-versed in these matters, and some of us have even experienced similar situations. We know it can be a tough time, but we’re here to guide you through it.

So, let’s dive in to find out more about HMRC debts and your credit score.

What Is HMRC Debt?

HMRC debt is debts owed to HM Revenue and Customs.

The most common types of HMRC debt are tax bill arrears for individuals and unpaid VAT from companies. You might also be hit with additional fees and debts if you pay your tax late.

Another common HMRC debt is overpayment of tax credits. You might have your tax credits reduced for a set period while the money is repaid, or you might be asked to pay the full amount at once.

This is why you must inform HMRC of any changes to your personal income or family living. Not informing them will only go unnoticed for a short time before repayments are requested.

Don’t worry, here’s what to do!

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.

Fill out the 5 step form to find out more.

How Can I Pay HMRC Debt?

If you can clear your HMRC debt, then it is best to do so. Otherwise, you could face legal action (e.g. county court judgment) – or even worse, imprisonment (although this is very unlikely for most people).

But if you cannot pay what HMRC are asking you to pay, there are other options. HMRC usually offer their Time to Pay Arrangement (TTP) so you can spread the cost of any HMRC debt over six months or a little more.

This helps you pay off the debt in affordable monthly instalments and avoid HMRC enforcement actions.

It should be noted that HMRC is usually reluctant to offer a TTP payment plan beyond one year. And there’s no ‘standard’ Time to Pay arrangement. They will look at what you can afford to pay and then use that to work out how much time you need to pay.

If you feel you need more than a year to catch up on what you owe, you will need to put forward a compelling case.

The reason is simply that it is likely you will also owe them money next year. Besides, HMRC may not see long-term repayments as a viable solution to the current problem. In simple terms, it will drag on too long.

Does HMRC Debt Affect Credit Rating?

If you have had HMRC debt in the past, you might suddenly want to know if it harms your credit rating.The good news is that HMRC debt won’t affect your credit file.

The reason for this is quite simple and given away in the name ‘credit rating’.

When you get into debt through a personal loan or credit card, you take out credit intending to pay it back. But when you owe money to HMRC, you haven’t taken out any credit.

HMRC debts are simply money owed to the UK Government, but the UK Government hasn’t given you any credit. And for that reason, the debts you owe to HMRC will not impact your credit score. And thus, it will not reduce your chance of getting credit or negatively impact your financial health.

However, it is possible for HMRC to declare you bankrupt, which would of course reduce your chances of getting credit in the future.

Remember, a debt from HMRC will not be registered on your credit file unless they apply for a CCJ or make you bankrupt.

Does Debt Collection Affect Credit Rating In The UK?

If you don’t repay your debt, HMRC may ask a debt collection agency to recover your debt.

The debt agency is then responsible for chasing the debtor for repayment. Such agencies are likely to send more aggressive reminders and threaten to seize your goods or take legal action.

If HMRC passes your case to a debt collection agency, this will not appear on your credit report. It is also important to note that debt collection agencies are not bailiffs. They have limited powers under the UK debt collection laws.

For instance, they cannot force entry to your home or business premises, and they cannot seize goods.

Why You Should Pay HMRC Debts

HMRC often uses external debt collection companies to recoup the money you owe them. So, if you are not paying because you disagree with them or because you don’t want to hand it over, you won’t succeed.

They can even employ bailiffs to come and get the money (or seize and sell your valuables) if they prove you do owe them in court, which is almost always the case.

But this isn’t the only reason you should look to pay HMRC.

Can HMRC Take from My Pay?

Yes, HMRC has extra powers that creditors don’t have. For example, they have the power to go directly to your employment income to recover what is owed.They can do this through a direct earnings attachment (DEA).

But this isn’t their first choice of action, so don’t worry. You will have a chance to contest their debt claims or make other payment arrangements.

For example, if you agree to a debt repayment plan, they won’t enforce the DEA.

How HMRC Take from Your Pay

In addition to DEA, HMRC will take money from your pay by adjusting your tax code in the PAYE scheme. In other words, they simply increase the amount of tax you pay before you receive your pay from your employer.

But they won’t do this to everyone equally. If you earn less than £30,000 per year and have HMRC debts that amount to £3,000 or less, they can’t adjust your code. But if you earn more than this, HMRC may come down even harder on you.

Will Bankruptcy Clear Personal HMRC Debts?

If you do not agree to pay HMRC, they could apply to make you bankrupt. This would mean you don’t have to pay the debt directly.

However, your current assets will be sold, and any money generated from these assets will go towards paying the HMRC debt.

When Will HMRC Try to Make You Bankrupt?

Data suggests that HMRC will only attempt to make you bankrupt if you owe more than £5,000 and are refusing to make arrangements to pay. But they will only do this as a last resort.

How to Contact HMRC About Your Debts

You might want to get your accountant or financial advisor to contact HMRC on your behalf. But if you want to speak to them personally, you can call 0300 200 3300.

Their lines are open between 8 am and 8 pm on weekdays and from 8 am to 4 pm on Saturdays.

Don’t ignore HMRC debts because they won’t go away.

Lastly, if you’re worried about HMRC debts and money being taken from your wages, contact an independent charity like StepChange or National Debtline. They will give you clear, practical advice about how to deal with your debts.

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