A federal tax lien is a lien imposed by law to secure the payment of taxes.
It attaches to a person's property, but it may be imposed for both unpaid property taxes and in connection with any kind of personal federal tax, including income tax, gift tax or estate tax.
If property is sold while a lien is in effect, the Inland Revenue Service (IRS) will be paid out of the sales proceeds before the taxpayer receives the sales price.
Tax liens are a US concept. There is no equivalent in the UK.
The UK's equivalent to the IRC is HM Revenue and Customs or HMRC. HMRC deal with all personal and corporate taxes, including income tax, capital gains tax, inheritance tax, corporation tax and VAT.
It is the legal responsibility of every UK taxpayer to settle his or her tax bill. Non payment gives rise to an action in debt.
HMRC's job is to ensure that taxes are paid.
If an individual or corporation cannot pay its tax bill, the first step is to get in touch with HMRC. HMRC has the power to spread outstanding payments over a period of time and can provide guidance on options to raise money to pay the bill.
If a tax payer simply ignores a tax demand, HMRC will issue a "letter before action" which is a legal letter warning the taxpayer that he will face debt recovery action unless the tax is paid, or a payment scheme is negotiated with HMRC. Interest will be charged and penalties may apply.
If the letter before action is ignored, HMRC will enforce the debt. It can do this in a number of ways.
If an employee pays tax under the Pay As You Earn (PAYE) system, HMRC will collect the debt from the employee's salary by reducing his tax code. As at July 2013, the maximum amount that HMRC can reclaim this way is £3,000.
HMRC can start magistrates' court proceedings for small claims, which (as at July 2013) are defined as debts of less than £2,000 owed for no longer than a year. For larger claims, proceedings are brought in the County Court. If the taxpayer has a judgement ordered against him, this will appear on a Register of Judgements, Orders and Fines, which is a matter of public record. This will affect the debtor's credit rating. HMRC can then take steps to enforce the judgement and recover the money from the debtor.
An action in distress gives HMRC the right to seize a debtor's personal possessions and sell them to pay the outstanding debt and costs. If they're sold for less than the debt, the taxpayer remains liable for the difference.
If tax remains unpaid, HMRC can take serious remedial action.
This includes petitioning for bankruptcy against any individual, or for a winding up order in respect of a corporation. This would force the individual or company to cease trading and its goods and/or assets sold to pay the debt.