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23rd July 2019

New Breathing Space Scheme for Problem Debt

New breathing space scheme to be introduced in 2021

The Government has confirmed a new breathing space scheme will be introduced in 2021 to help individuals with problem debts.

breathing space scheme - debt graffiti

Personal tax debts will be included in the scheme so self assessment income tax debts will be covered, as will some other tax debt.

The scheme will protect individuals with problem debt by freezing interest payments and suspending enforcement action by creditors for a period of 60 days.

During this period individuals will be required to engage with professional debt advisers.

There will be additional protections for those receiving NHS treatment for a mental health crisis who will not be expected to seek debt advice and will be protected while they are undergoing treatment.

The package also includes a statutory debt repayment plan.

The Government expects to lay the regulations before parliament before the end of 2019 to allow for implementation in early 2021.

The Government is proposing that personal tax debts will be included in the scheme, which means that self assessment income tax debts will be covered.

The definition of personal tax debts is also expected to include employer and employee NICs, PAYE and business rates, and VAT owed by sole traders with turnover below the VAT threshold.

Where the sole trader has turnover above the VAT threshold, these amounts will be treated as business debts and will not be covered by the scheme.

This distinction introduces complexity both in terms of the drafting of the regulations and implementation by HMRC.

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