Contractors' Questions: What if I can't pay my EBT tax demand?

Contractor’s Question: In 2008-09 I worked on a short contract in Europe via an Isle of Man company which had an EBT scheme. Recently I received an HMRC letter with a high tax assessment. But I am now a pensioner with a very small pension.

So how can I respond to the HMRC letter/assessment? I have not got funds to pay and as I am no longer working there is no point in entering into any arrangement. Overall, I feel dismayed that whatever new legislation is passed it can be backdated to catch those who tried to work within legal boundaries of the time.

Expert’s Answer: The following comments in this response are without prejudice. Individuals investigated by HM Revenue & Customs should take independent professional advice about their own individual circumstances before taking any particular course of action.

Your ultimate question appears to be what happens if you can’t pay your tax bill.

Before addressing that issue, it is very important that you check the assessment to ensure that it is in the correct amount before considering the payment issues. My advice is that you should appeal against the assessment and apply for the amounts charged to be suspended pending the outcome of any test case that HMRC takes. If nothing else, this course of action will delay the time when you have to make payment. Of course if HMRC win such a case, further interest payments will accrue.

HMRC operates on several levels and sometimes ‘never the twain shall meet’. On one side the Inspector of Taxes is responsible for determining how much tax an individual has to pay and on the other, a Collector of Taxes is responsible for actually gathering the monies in. The Inspector therefore is not the slightest bit interested in the individual’s ability to pay and the Collector, who of course should be concerned about it, usually just pursues the debt to bankruptcy if necessary.

As with all debt management situations communication is essential and it is possible to come to arrangements to pay and even agree a lower sum in extreme cases. Those cases are rare and normally if the individual has assets, e.g. a house with equity, a car, investments or even valuable collections, then HMRC will expect them to be realised to pay the tax bill. One thing is absolutely certain though – you should not adopt a ’head in the sand’ approach as to do so will inevitably lead to insolvency action against you.

Personally, I don’t think that HMRC will bring in new retrospective legislation to tackle the 2009 EBT issue; it is more likely that they will claim to reaffirm their interpretation of the law at the time and it is this that is likely to be the subject of any test case.

The expert was John Green, an adviser at specialist chartered accountancy firm Cobham Murphy.

Editor’s Note: The comments in response to this Contractor’s Question are for general guidance purposes only. Neither ContractorUK nor the contributor accepts liability for any direct or indirect loss arising from any reliance placed on the reply.

Further Reading:  Contractors' Questions: Any advice for EBT contractors under HMRC enquiry?

If you have received a letter from HMRC concerning your tax in relation to an EBT or other scheme then you may find help and guidance on our forum - HMRC Scheme Enquiries.

Wednesday 6th March 2013