Tax Debt and Mental Health

Debt is a basic fact of life for most people – and honestly, that’s usually not much of a problem. Everything from credit cards and student loans to decades-long mortgages are day-to-day realities all across the UK. As long as your debts are under control, you’re probably fine most of the time.

However, there are definitely times when debts start to mount up – and that’s where they can begin to be a problem for more than just your wallet. Debt is a key source of stress, depression and anxiety for many people. The key thing to remember is that you’re not as alone or helpless as you think you are. There are resources out there to help you. Perhaps more importantly, there are ways of making sure your debts never spiral out of control in the first place.

Tax debt
Penalties for not paying
What if you've been charged incorrectly?
Support available when you've got debts
Dealing with debt
When to talk to HMRC and what to say
Getting outside help

Bringing the cost of your debts down
What to do if debt is affecting your mental health
Signs of stress, depression and anxiety
Taking manageable, practical steps
Where to get additional help
Additional help during the coronavirus

Tax debt

Tax debts have a nasty habit of creeping up on you, mainly because people don’t understand the rules. The first many people even hear about a tax debt is when HMRC starts making noise about it. Pretty soon they find themselves looking down the barrel of a threatening letter from HMRC, with talk of fines and stacking penalties. Not long after that comes the phone call from the HMRC Debt Management and Banking (DM) people, demanding immediate payment.

If paying up straight away is a problem, you can’t just stick your head in the sand and hope the taxman goes away. He won’t – and things will just keep getting worse if you let them. However, there are a wide variety of routes to resolving the situation and HMRC are more than willing to help you find a solution that works for both you and them.

Penalties for not paying

One of the easiest ways to get lumped with a tax debt is when you file Self Assessment tax returns – or when you’re supposed to and don’t. Even if you don’t actually end up owing any tax, if HMRC’s expecting a return from you and don’t get it, you’re in trouble. This affects more than just the self-employed, too. There are loads of reasons why the taxman might be waiting for a Self Assessment return from you. Maybe you’re the Director of a company, or just making a little extra by renting out a room or selling regularly on eBay. Whatever the reason, if you don’t hit the Self Assessment filing deadlines, you’re probably going to get a penalty.

Missing the deadline of the 31st of October (for paper returns) or 31st of January (for online filing) by just a day will cost you an automatic £100. You won’t see that again even if you owe no tax. If the taxman’s still waiting after 3 months, you’ll be looking at daily £10 fines up to a maximum of £900. 3 months after that comes another £300 penalty (or 5% of what you owe if that’s higher). After a year, you’ll be hit by that again. If you’ve got a really good reason for missing the deadlines, you might be able to argue your penalties down or appeal against them. Don’t count on that, though. The list of valid excuses is pretty short.

There’s no point in digging your heels in and refusing to pay up, either. HMRC has a whole range of ways of getting the cash it’s owed out of you, including:

Direct Recovery of Debt, where they basically just raid your bank account.
Selling your personal goods at auction.
Bankruptcy proceedings.

What if you've been charged incorrectly?

There are a fair number of reasons why you might be looking at a bigger tax debt than you expected. For instance:

You might have made a mistake on a Self Assessment return.
You might have forgotten to tell HMRC when you stopped being self-employed.
You might have stopped working a PAYE job part-way through the tax year.
HMRC might have had to estimate part of your tax bill.
You might have lower profits than last year, meaning your payments on account are too high.

Much as they don’t like to admit it, HMRC does make mistakes from time to time. The thing is, even if you’re positive you shouldn’t have to file a tax return, you can’t ignore a demand for one. The same goes when they lump you with a penalty or ask for more tax than you think you owe.

You can get some basic help from HMRC’s Taxes Helpline on 0300 200 3300, or their Self Assessment line on 0300 200 3310. Either way, you’ve got to get moving as soon as you realise there’s a problem.

If they start asking questions you don’t have immediate answers to, don’t panic and don’t offer guesses. Just explain that you’ll call them back when you’ve got all the information. If you can, get the name of the person you spoke to and note down the time of the call. This could help speed things up when you get back in touch. If you chat to them on their online Live Chat system then you can opt to get an email of the transcript at the end of the conversation so that you have a record of everything that’s been said. This can be useful if you need to refer back to it for instructions or clarification.

Support available when you've got debts

Remember we mentioned that the important thing is to understand you’re not alone? It’s so easy to get caught up in your own head when you’ve got debts that feel out of control. This goes for all kinds of debt, not just taxes. When there’s interest stacking up and legal threats looming, it can feel like a lonely and dangerous world. However, there’s a whole range of support for people with debt problems. The right help for you is going to depend on your circumstances – but in a lot of cases it might be as simple as claiming a tax refund.

Every year, HMRC ends up sitting on many millions in unclaimed tax refunds – simply because people don’t realise what they’re owed. When you’re paid via PAYE, many of the essential expenses of doing your job can earn you tax back from HMRC each year. For most refund claims, this means getting tax relief for travel to temporary workplaces, but there are lots of other expenses you can claim for.

For the self-employed, the system’s a little different, since you’re actually being taxed on your profits. When you file your Self Assessment return, all the necessary costs of doing business count against the income you’re paying tax on.

In either case, the rules on expenses can be tricky to get your head around, so lot of people choose to get professional help. Getting your taxes sorted properly, whether on your own or with expert help, can be a big step toward ending debt problems before they start.

Dealing with debt

As for what to do when you’re already stuck with serious debt problems, you’ve got a variety of options. Again, the right approach will depend on how bad the trouble is.

One example is the Debt Management Plan. This is basically just an agreement to pay off your debts in an affordable way. They’re often arranged through specialist companies, who share out your repayments among the people you owe – for a fee, of course. You’ll need to cough up some information about yourself and your circumstances, and the plan can be cancelled if you don’t hold up your end.

For debts up to £5,000 when you’ve got a County Court or High Court judgement against you, you might end up with an administration order. In this case, it’s the local court that divides up your monthly repayments among your creditors. Obviously, this isn’t much fun, but it does mean that the people you owe can’t take any more action against you without a court okaying it. There’s a court fee to pay for this, but it can’t be higher than 10% of your total debt.

Another option is an Individual Voluntary Arrangement (IVA). You make regular payments to an insolvency practitioner, who splits them between the people you owe. IVAs give you more freedom than declaring bankruptcy. However, they're still serious business, and you can find yourself knee-deep in bankruptcy proceedings if you break their terms. Your creditors get a say in this as well, of course. Unless the people you owe at least 75% of the money to agree, you can't take out an IVA at all.

For debts up to £20,000, you can sometimes get a Debt Relief Order to help soften the blow. There’s a string of hoops to jump through to qualify for these, but again they mean your creditors need a court’s permission to go after you. Also, you’re generally considered clear of your debts after 12 months. DROs are designed for people with very little spare cash, and who don’t own their own home. You’ll need to apply through an authorised debt adviser, too. If you meet the criteria (you’ve got less than £1,000 of assets, for example), you pay a £90 fee to an “official receiver”, and accept a few restrictions. You can’t be a company Director, for instance. You also can’t borrow over £500, open a bank account or manage a business without telling people about your DRO. You can think of it as a sort of “Diet Bankruptcy” deal.

With full-on bankruptcy, your situation gets looked at by the Insolvency Service. If they say so, and your debts are all unsecured, you'll again be given some rules to follow about handling your money and assets. Some of your property might be sold to pay your debts, and you might have to turn over things like bank cards. Even your home can sometimes be sold, depending on your circumstances. It sounds awful – and it pretty much is. However, bankruptcy really protects you much as your creditors. Your pension savings, for example, are usually kept safe - along with your household essentials and anything you need for your job.

When to talk to HMRC and what to say

The basic rule of thumb about contacting HMRC is to do it sooner rather than later. For starters, you’re going to want to ring them immediately if you’ve got a payment or filing deadline looming and you already know you’re not going to hit it. If the deadline’s already flown by, of course, the longer you wait the worse things will get. Sending up a distress flare early is the best way to limit the damage – or even avoid it altogether.

Another time to jump on the phone to HMRC is if you spot anything wrong with your tax statement. Mistakes on your Self Assessment can usually be sorted out easily before the deadline by just amending your tax return online. If it’s too late for that, you need to reach out to the taxman as soon as possible. You’ll probably have to sit on an automated queue for a while, particularly at busy times of year. It’s still a lot better than waiting for the mistake to catch up with you further down the line, though. If HMRC has to come looking for you, the ride tends to be a little bumpier.

As for how HMRC can actually help when you’ve got a tax debt you can’t pay, there’s actually quite a lot they can do. If you know you’re going to have problems paying up, you might be able to sort out a “time to pay agreement” with them. You’ll have to cough up a little interest on top of what you owe, obviously, but it’s better than choking on a debt you can’t pay off at all.

You’ll be expected to explain why you can’t pay in order to arrange a ''time to pay agreement''. That’ll mean forking over some information about what you’re routinely earning and spending. There might also be some questions about other family members’ earnings. Again, don’t resort to guesswork when you’re answering these types of questions. Arrange to call them back when you’ve got what they need.

If you’ve got any particular circumstances limiting your ability to pay, HMRC will want to know about these too. Any illnesses or business crises you’ve been weathering can be useful information, for example. Your agreement might involve paying off a chunk of your debt now, then the rest by instalments later. That’s a good option if you can afford the initial lump, as it’ll make the debt cheaper in the long run.

Once you’ve got your agreement in writing, you should also let HMRC know if your circumstances change. Don’t wait until you miss an instalment to get in touch. When it comes to paying off a debt like this, planning ahead is everything.

Getting outside help

It’s worth remembering that you don’t have to go through all of this alone. HMRC isn’t really in the business of holding people’s hands, but there are plenty of other organisations that are. Specialised tax firms can be a great option to help you through a debt problem. In some cases, they can get the amount you owe reduced – or even wiped out. A lot depends on your circumstances, naturally, but expert help is worth its weight in gold here, and a tax refund can go a long way toward softening the blow of your debt.

Bringing the cost of your debts down

There’s a general rule that a lot of people cling to about managing money troubles – you can’t borrow your way out of debt. It’s broadly true, as far as it goes, but it really doesn’t paint the whole picture. For instance, while borrowing to pay off debts isn’t always a great idea, it is possible to trade an expensive debt for a cheaper one. Not all debts are equally expensive – just ask anyone who ever switched a credit card balance to another provider for a 0% interest rate. You’ve got to get a bit hands-on to make the most of things like this. Even so, you could lighten your load a lot with just a few careful moves.

We really do mean careful moves here. Don’t leap at the first quick loan option you find. Payday loans, for instance, are sold to you on the idea that they're easy to get and a fast way to nab yourself some short-term cash. That's all true, but you're really only squinting at the big picture here. If you don't keep your wits about you, you might just be digging a much deeper hole than the one you’re already in. For instance, let's say you get a payday loan of £600 for 6 months, at 0.75% interest a day. You get your £600 now, but at the end of the loan you'll be paying back a whopping £1138.29 – almost double what you borrowed. That's a “representative APR” (the interest rate plus all the associated charges) of 1,086%!

With any kind of debt, the first thing you need to do is get control of your spending. Once you’ve got a handle on that, it’s time to look at things like:

Checking what benefits, grants or other support you might be entitled to.
Finding out if you can claim a tax refund.
Making sure you’re in the correct Council Tax band – a surprising number of people aren’t.
Move credit card and other debts to cheaper providers where possible.
Considering whether it’d work out cheaper to remortgage your home to pay off high-interest debts. Be careful, though, switching an unsecured debt to a secured one like this can be risky.

A key thing to remember is that debt interest basically always stacks up higher and faster than savings interest. It’s painful to dig into your savings to pay off a debt, but it still means paying less over time.

What to do if debt is affecting your mental health

If there’s one thing we still don’t talk about enough in the UK, it’s mental health. There’s still so much stigma attached to issues like stress, anxiety and depression – particularly in industries like construction. UK construction workers commit suicide at over 3 times the national average – and still so few people who are suffering feel like they can get the help they need. When you’re dealing with the toughest aspects of HMRC and debt, it can take a serious toll on your mental health.

Thankfully, HMRC does have a few policies in place to help people through difficult times. In fact, it’s their legal responsibility to make what they call “reasonable adjustments” to assist people with certain mental health conditions in using their services. Depression, for example, can count as a “disability” and be covered under the reasonable adjustments system.

Basically, if you qualify, HMRC can do a few things to make life a little easier when dealing with them. It may be as simple as contacting you in writing rather than over the phone, for instance, or taking extra care to make sure you’ve understood everything. You may be able to arrange for a relative or friend to speak to HMRC on your behalf, if you can’t handle it yourself. Even if your condition doesn’t fully count as a disability, you can still ask for HMRC to take it into account in their dealings with you. They’ve started taking mental health very seriously, working hard on improving their training to better accommodate sufferers’ needs. There’s even a “Needs Extra Support” (NES) system, where they tend to throw out their standard scripts and procedures in favour of offering more personalised, one-to-one help.

The thing is, they won’t know to offer you all this extra support unless you explain that you need it. You have to ask them to put a note in your file describing your condition or problem. That way, you won’t end up going round in circles every time you speak to a new person. As always, the sooner you ask for help the better things will work out.

Signs of stress, depression and anxiety

When it comes to mental health problems, the first and most important step is recognising the signs. Crucially, it’s just as essential to learn to spot them in your colleagues, friends and family as in yourself. Here are a few early warning signs that you or someone else may be struggling with mental health.

Difficulty sleeping, concentrating or remembering things.
Feeling nervous, irritable or overwhelmed.
Feeling burned out or hopeless.
Lacking energy or motivation.
Increased heart rate, sweating, trembling or rapid breathing.
Feeling weak, restless or tense.
Gastrointestinal trouble or changes in your eating patterns.
Difficulty making decisions or engaging with other people.
Uncontrollable worry, panic or anxiety.
Suicidal thoughts.

That's a long list - and almost everyone can check off a few of those symptoms from time to time. The trick is recognising when you're getting swamped by things, and reaching out before it goes too far.

Taking manageable, practical steps

With debt problems, it’s tempting to look for “quick fix” solutions – but that’s usually a mistake. A lot of people simply end up swapping one set of debts for another, potentially much larger, one. The same goes for looking after your mental health. Any looming problem become a lot more manageable when you break it down into smaller steps. With debt, that can mean spotting the signs of trouble early, understanding the causes and making a plan to tackle them.

The exact same process applies to mental health. It can be tough to break the cycle of mounting money problems causing stress or anxiety – which then only worsen the money trouble. The best place to start is often with the practical side – cutting out problem spending and bringing down the cost of your debts. However, that won’t always be possible when your mental health is tripping up your efforts. Again, though, taking small positive steps is the surest way to get things moving in the right direction. That can mean coming to terms with the relationship between your mood and your spending habits, for example. Once you start spotting the patterns, it can get a lot easier to attack the problem at its roots.

If you’re worried about getting professional mental health help, don’t be. There’s a lot more to it than the old stereotypes of medication and side-effects suggest. In fact, a lot of mental health issues can be handled without ever getting a prescription, through things like Cognitive Behavioural Therapy. For many people, improving mental health is all about changing the way they think. It takes a little practice, but can be very effective if you stick with it.

The main point is to give yourself permission to take back control. Once you’ve seized the reins of your own mental health, you’ll be in a much better position to be proactive about your debts. While you’re at it, give yourself permission to get qualified help as well. There’s no shame in suffering from poor mental health, just as there’s no shame in struggling with debt. Don’t be fooled into thinking you have to tough out either alone. No debt crisis is impossible to fix, and there’s a whole range of organisations out there offering real, practical and judgement-free solutions. You can get free of your debts with the right guidance, and no one needs to suffer alone through a mental health crisis.

Where to get additional help

When debt issues lead to, or worsen existing, mental health problems, knowing where to look for help is critical. In terms of basic, practical guidance, you could do a lot worse than the Citizens Advice Bureau. They have a comprehensive service for debt issues, even if they’ve reached the point where people are repossessing your belongings. National Debtline is also a great option for free and confidential advice.

Stepchange is a charity dedicated to helping people conquer their debt problems, helping 650,000 people a year. They’ve got specialised services for people with mental health issues with a free advocacy system. While we’re on the subject, there’s a fantastic list of helplines and support groups for mental health issues on the NHS website, covering everything from stress and depression through to panic attacks and bipolar disorder. There’s even a specialist charity called The Lighthouse Club for the construction industry, where mental health is a serious issue. They have a dedicated helpline and even a construction worker mental health app.

Good planning, expert guidance and practical help will go a long way toward getting your fears and finances under control, and there are so many resources out there to get you back on track. Debt and depression both grow fastest in the dark. Don’t suffer in silence, particularly at the cost of your mental health.

Other useful debt contacts, charities and organisations include:

The Money Advice Service (0800 138 77 77)
- Provides guidance on a range of money and debt problems, from moving home to starting a family.
Mental Health and Money Advice
- An online advice service focused on helping people to understand, manage and improve their financial and metal heath.
Money Saving Expert
- The largest UK consumer advice website, helping to bring down bills, tackle debt and save cash.
Debt Advice Foundation (0800 043 40 50)
- A charity offering free, confidential debt advice. Aims to give you back control of you finances
Mental Health Foundation
- Organisation helping people to understand, protect and sustain good mental health.
Mind
- The mental health charity, determined to help people understand the relationship between money worries and mental health, and to show them how to improve both.
NHS Moodzone
- A no-nonsense survival guide for people suffering from financial stress.

What financial support has been available during Covid-19?

Statutory sick pay

From 13 March, employees have been able to claim statutory sick pay (SSP) if they’re too ill to work or they’re self-isolating because of COVID-19 symptoms. This includes anyone in the household who is looking after people who are self-isolating and are doing a household quarantine.

With SSP, you can get up to £94.25 a week. It can be paid by your employer for up to 28 weeks and will start on day 1 of you being unable to work, rather than the usual day 4. From 20 March, people have been able to get an isolation note instead of a doctor's note by going to NHS 111 online and filling out a form.

For more information, check out GOV.uk.

Mortgage holidays

For many people, the mortgage is the biggest monthly outgoing. So if you have been experiencing difficulties trying to make these repayments because of COVID-19, you may be able to take a ‘mortgage holiday’ for three months. This basically means your repayments will be paused during that time, but you will have to pay the same amount eventually.

Mortgage lenders have agreed with the government to offer these repayment holidays to any household facing financial hardship because of the current times. The best thing you can do is to contact your lender to find out a solution that works for you.

Landlords can also make use of a mortgage holiday if their tenants are having money worries too.

There’s additional reassurance for tenants, as the government has confirmed that you will not face the threat of eviction for at least three months if you’re having financial difficulties.

The job retention scheme

You may have heard of friends or family being furloughed, or perhaps you’ve been furloughed yourself. The scheme ensures businesses do not have to face tough decisions about losing staff. They’ve been able to claim back up to 80% a furloughed employee’s wages, with a cap of £2,500 a month.

If you’ve been placed on the job retention scheme, you’ll have been asked to sign a form by your employer – but you don’t have to do anything else. You’ll still be paid by them. If the £2,500 cap is less than your usual pay, some employers have been making up the 20% difference. But they’re not required to do this.

Recently the scheme has been extended to the end of October 2020, but companies will have to start contributing towards the 80%. At the time of writing, this is for staff that begin to return part-time.

Support for the self-employed

Currently, the coronavirus support package for the UK’s self-employed workers is a taxable grant based on previous monthly earnings over the last three years. You could get up to 80% of earnings and the grant is paid out in a single instalment covering 3 months. It is capped at £7,500 altogether. To qualify, you also have to have earnings of less than £50,000 a year.

Check your eligibility with GOV.uk.

Dealing with life in lockdown

Of course, not every mental health problem you’re going to find yourself dealing with is financially based. In fact, many of the biggest challenges we face during lockdowns can’t really be fixed by throwing money at them. Here’s where it really is worth taking some time to look after yourself – and it can be surprisingly simple with a few basic techniques:

Remember to be kind. We’re all at risk of becoming isolated when we spend so much of our lives being told to keep “socially distant”. Everyone deals with isolation in their own way, but there are still ways of reaching out that don’t mean getting within coughing distance. It’s healthy to ask for help, and it’s healthy to offer it when you see someone struggling. Any time you make an effort to be kind to someone else, you both benefit. When it comes to good “mental hygiene”, one hand really does wash the other.
Set your creativity free. Chase a hobby or an interest you’ve been too wrapped up to give time to. Start learning an instrument, try painting something – just sing in the shower if the inspiration grabs you. Mental health problems thrive when they’re bottled up and silenced. Express yourself. Dance like your webcam’s off.
Don’t put up with the “new normal” of fast-moving change and chaos. Make your own normal and stick with it. It’s impossible to tackle a problem without a plan, so make one. It doesn’t need to be much. Just set a daily routine that works for you. Get up and go to bed on schedule, brush your teeth and jump in the shower at set times. Keep your routine regular, productive and achievable. You’re in charge of your life, so act like it! Even watching favourite TV shows regularly can help you mentally “ground” yourself.
Learn to let go. There are only two kinds of problems in the world: the ones you can control and the ones you can’t. With COVID-19, there are definite steps you can take to help tackle the spread. Wash your hands regularly, try not to touch your face and follow the medical guidance that’s out there. Social distancing isn’t much fun, but we’re actively saving lives by doing it. In the same way, as we’ve already talked about, most of your financial worries have definite routes you can take to tackle them.

So many of life’s other hurdles, though, really are outside of your control. It’s tough to let go of those, but it’s worth realising that many of the worries you’re shouldering really aren’t yours to carry. You’ve got to learn to recognise the things you can control, and learn to let go of the ones you can’t. It won’t be easy, but it’s an important process for good mental health.

Tax Debt and Mental Health​