Tax arrears

What it means

Tax arrears are tax declared or assessed and left unpaid at the due date. They also arise from an unpaid advance or from an assessment after an audit.

Late payment interest runs from the due date. The arrears themselves do not fade quickly: the office can pursue them for years and will settle them first out of any payment that arrives.

Tax that has been declared but is not yet due is not arrears: while the period runs it is simply a liability. Arrears are also assessed tax by tax, so a company can owe VAT and at the same time hold an overpayment of income tax until the office sets one against the other.

How it works in practice

Arrears block a clean-standing certificate and with it public procurement, some grants and loans. They also drag down the tax reliability index.

If the money is not there, ask for an instalment plan before enforcement starts. Deferral is the tax office’s to grant, and with active communication it is realistic.

At the monthly close we compare the taxpayer’s account with the books. A small shortfall from an underpaid advance or a badly rounded payment is found at once, not when the company appears on the published list of tax debtors that banks and business partners also check.

What to watch out for

A payment with the wrong reference or to the wrong account is allocated somewhere other than intended. The arrears formally continue although the money left, and interest runs until it is matched correctly.

If the arrears remain unpaid after a demand, the office starts tax enforcement, typically by attaching the bank account. The account is frozen and the company cannot pay suppliers or wages, even though the debt itself may have been small compared with turnover.