When can you ask for a tax reduction?
If you are facing genuine financial hardship — job loss, drop in income, serious illness, divorce, bereavement, or another exceptional circumstance — both HMRC in the UK and the IRS in the US offer formal routes to reduce, defer, or write off your tax liability. The catch: neither agency will reduce a debt unless you ask, in writing, with proper supporting evidence. A clearly drafted hardship letter that cites the right scheme, attaches the right documents, and proposes a realistic outcome dramatically improves your chances.
The schemes available — UK (HMRC)
- Time to Pay (TTP) arrangements: formal instalment plans for income tax, self-assessment, PAYE, VAT, and Corporation Tax. Available online for self-assessment debts up to £30,000 if conditions are met; phone or written for larger debts. Statutory basis: HMRC's collection powers under the Taxes Management Act 1970 and the Finance Acts
- Hardship deferral: postponement of payment when paying would cause demonstrable hardship
- Special Reduction: HMRC may reduce a penalty under Schedule 55, paragraph 16 of the Finance Act 2009 when "special circumstances" exist (a higher bar than reasonable excuse — used sparingly)
- Reasonable Excuse: cancellation of late-filing or late-payment penalties under Schedule 55, paragraph 23 when something outside your control caused the failure (illness, bereavement, postal disruption)
- Council Tax (UK): a separate regime — local councils administer reductions under the Council Tax Reduction Schemes (Prescribed Requirements) (England) Regulations 2012, including discretionary reductions under section 13A of the Local Government Finance Act 1992
The schemes available — US (IRS)
- Installment Agreement (IRS Form 9465): monthly payment plans, automatically approved for individuals owing less than $50,000 combined tax, penalties, and interest
- Offer in Compromise (OIC) (IRS Form 656): settlement of a tax debt for less than the full amount, under 26 USC § 7122. Three grounds: doubt as to liability, doubt as to collectibility, or effective tax administration. Average accepted offers are roughly 14–18% of the original debt — but acceptance rates are well under 50%
- Currently Not Collectible (CNC) status: the IRS suspends collection action when paying would prevent meeting basic living expenses. Interest and penalties continue to accrue, but no levies or garnishments
- Penalty abatement: first-time penalty abatement (administrative waiver for taxpayers with a clean three-year compliance history) and reasonable-cause abatement under the Internal Revenue Manual
- State tax authorities (e.g., California Franchise Tax Board, New York Department of Taxation and Finance) operate parallel schemes — always check the relevant state
What every hardship letter must contain
- Your full name and either UTR (UK) or SSN/ITIN (US)
- The tax year and the tax concerned
- The amount owed and what you are asking for (specific reduction, instalment plan, deferral, write-off)
- A clear, factual explanation of the hardship — what changed, when, and how it affects your ability to pay
- An itemised statement of your monthly income and necessary expenses
- The scheme you are relying on (Time to Pay, OIC, CNC, reasonable excuse, etc.)
- A proposed solution — even a small monthly amount is more useful than nothing
- Supporting evidence: P45, redundancy letter, Universal Credit award (UK); pay stubs, unemployment award letter, medical bills (US); bank statements; rent or mortgage statements; utility bills
- Your signature and a contact phone number
Step-by-step procedure
- Do not ignore the demand — penalties and interest accrue daily
- Gather your supporting documents
- For US OIC: complete Form 656 plus Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses, and pay the application fee ($205 in 2024) unless you qualify for the low-income exception
- For UK Time to Pay: log into your HMRC online account and use the self-service tool if eligible, otherwise call HMRC's Payment Support Service
- Send the letter by tracked mail (Royal Mail Signed For / USPS Certified Mail) and keep the receipt
- Diary the response date and follow up
Response times
HMRC typically acknowledges within 15 working days and decides Time to Pay arrangements quickly; complex cases take longer. The IRS commonly takes 6 to 12 months to decide an Offer in Compromise. Both agencies suspend collection action while a properly filed application is under review.
If your request is refused
UK: request a statutory review by HMRC, then appeal to the First-tier Tribunal (Tax Chamber) within 30 days. The tribunal is independent and free to access.
US: for a rejected OIC, file an appeal with the IRS Independent Office of Appeals using Form 13711 within 30 days. For collection actions, request a Collection Due Process hearing with Form 12153.
Common mistakes
- Asking for a reduction without supporting documents — refused on the spot
- Underestimating monthly expenses — the agency will use the standard published allowances anyway
- Hiding assets or income — fatal to credibility and potentially criminal
- Missing the appeal deadline (30 days in both jurisdictions)
- Ignoring the underlying return — file all outstanding returns before asking for hardship relief
What Lettrio generates for you in 30 seconds
Our AI drafts a clearly structured hardship letter to HMRC or the IRS, citing the right scheme (Time to Pay, OIC, CNC, reasonable excuse), summarising your circumstances, listing income and expenses, proposing a realistic solution, and naming the supporting documents enclosed. PDF ready to send by Royal Mail Signed For or USPS Certified Mail. First letter free, no account required.