The Tax Man Always Collects – Things you need to know about tax debt

When it comes to paying bills it pays to be vigilant. If you are care free or inattentive of your financial responsibilities you could effectively become a harbinger of turmoil to your own wellbeing. Ignoring debt is often far easier than dealing with them, but eventually things will catch up with you.  This understanding is particularly potent when it comes to paying tax, and avoiding potential tax debt.

If you do get behind with your tax payments there are a variety of consequences that will begin to rollout, the severity of which will depend on your attentiveness and willingness to communicate and co-operate with the tax office. In most scenarios, tax debt will result in the following charges:

Late filing penalties and interest – These are where you provide a return, but after the due date.

Late payment penalties – Where a return has been filed but payment made after due date.

Non-payment penalties – Where there has been no payment made for your tax bill.

If you owe a significant value of tax and the local recovery office has been unable to reach an agreement with you or to enforce payment by distraint you may find that your file is passed to an enforcement office for consideration of bankruptcy proceedings. It really does pay to pick up the phone and communicate, as the tax office can only help if they know there is an exceptional problem. It also pays to make sure your returns are completed and filed on time.

If You Need More Time To Pay

If you owe tax which you cannot pay immediately, then you may want to seek some agreement to pay your tax by instalments. Before agreeing this, you will be required to complete all outstanding tax returns and explain how you will meet on-going tax bills. The maximum time you will normally be allowed is 12 months, though a shorter timescale is more usual. Interest will still be due on the debt. The worst thing you could possibly do it get into more debt to pay off that debt. Credit cards, personal loans or payday loans should be avoided, and if you do need help then looking into financial counselling

The amount demanded might be wrong

If you don’t complete a tax return on time, you may find that you become responsible for a balance known as a ‘determination’ which is ultimately an estimate created by the tax office in the absence of your requested return. This balance can differ greatly from the actual tax you may have accrued but you will be legally due to pay this balance until an accurate return is filed and completed.

In other cases, where a tax return is completed on time, you may find that an error has occurred, such as a failure to credit a payment you have made. Whatever the reason for the wrong demand amount, it is vital that you act quickly to get the figure sorted out.

What happens if you ignore a payment demand?

This is one of the worst things you can do when it comes to tax due. Ignoring a demand does not make the debt go away and if you don’t respond you may be charged additional interest, penalties and surcharges. These are not small charges and in addition to this, your debt may be referred to a private debt collection agency which will carry its own set of charges. In worst case scenarios where the tax office cannot reach agreement with you for the payment of tax due, they may request a case to enforce bankruptcy, and if self-employed, may also put forward a petition for the winding up of your company.

Winding up your company

If the court makes a winding up order, it may mean that your company is forced to cease trading or you lose control of your business. It may also mean that goods and assets owned by your company are sold to pay your debt plus costs

In deciding the action to take, the court may appoint someone to investigate your financial affairs and you may find yourself disqualified from acting as a company director.

Personal bankruptcy

If you are a sole trader or individual in a partnership and fail to meet all requests to settle your tax debt you may find yourself personally petitioned for bankruptcy. If granted, you may be forced to cease trading, and your assets may be seized to pay the balance due.

The tax office doesn’t mess around. Money due is pursued vigilantly and it really does pay to get your return in on time and with accurate information. At the first sign of trouble, get in touch and discuss your options. Most charges and discrepancies are avoidable with responsibility, communication and an attentive approach.

Author Bio:


This post was written by Simon Holmes who is an Australian based finance blogger. You can find him over here talking about all things money and budgeting.

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