Tax Debt and Mental Health​

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.

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.

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.

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.

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.

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, ones. 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.