The following is not an exhaustive summary of what a payment plan entails but rather a list of the main issues to keep in mind. For detailed information please refer to the terms of the payment plan in question.
By signing and/or making deposits into a payment plan the taxpayer interrupts the limitation period of the debt and a new four year limitation period starts.
Interest on arrears is still compounded on the debt in accordance with the relevant legal acts, even though the taxpayer makes a payment plan.
A payment plan does not have any effect on default remedies for taxes/fees not included in the payment plan.
A payment plan does not affect set-offs/netting of interest relief (vaxtabætur), child benefits (barnabætur) or any credit balance that may accrue in the tax system, including VAT credits. Any set-off is independent of the payment plan and is not registered as a payment into the payment plan. Set-offs do not preclude the withholding of salaries (launaafdráttur), when applicable, unless the debt is paid up as a result of the set-off.
A payment plan is automatically terminated under the following circumstances:
- Non-payment according to payment plan
- Non-payment of new tax assessments
- Non-payment of estimated tax, increases and changes
The termination of a payment plan will revive any default remedy available to the public authorities, for example: attachments/seizures of property, repossession of property and forced sales.
A valid payment plan does not stop notifications of overdue taxes being sent to the taxpayer.
In addition to the above the following applies to payment plans made in the wake of an unsuccessful attachment:
By signing a payment plan the taxpayer declares that any defaulting on payments according to the schedule means that he or she is destitute and unable to pay his or her due debts to creditors. At the same time it is unlikely that his or her payment difficulties will be resolved in the short term. In the instances where a taxpayer does not honour his or her payment plan the authorities may requisition that the taxpayer be declared bankrupt within the next 12 months, cf. Point 4, paragraph 2 of Article 65 of law no 21/1991 on declarations of bankruptcy etc. The same applies in the instances where the taxpayer is a company.
In cases where the taxpayer is a general- or limited partnership the signing of a payment plan means that the Collector of taxes may petition for bankruptcy of the general- or limited partnership´s estate as well as of the estate of the person in charge of the partnership.
A petition for bankruptcy will not be filed as long as the entity involved honours the payment plan. Any other recourse available to the Collector of taxes will be utilized, i.e. the prevention of operations, repossession of movable property and forced sales will be continued.
Claims in Online banks (refers to all payment plans except for plans relating to the withholding of salaries)
A claim will appear in the taxpayer‘s online bank but no payment slips are sent. If the taxpayer is a company the claim will appear in the online bank registered to the company.
For technical reasons the date of payment appears as due date in the online bank. This does not change the mandatory due date nor the assessment of late payment penalties.
A claim will be removed from an online bank in 30 days following the payment day stipulated in the payment plan.