HMRC is what is called a “sophisticated creditor” in that they have economies of scale that ensure that it is worth their while to chase even the smallest of debts. There is no particular difference in the methods used for collecting different types of taxes, but VAT and PAYE are often pursued more readily as they make up the largest types of tax that a company pays.
So, what steps are taken by HMRC to ensure payment is made?
Step 1: Reminders and Collections
In the first instance, HMRC will start collecting debts by issuing payment reminders and these can be in the form of letters and even SMS texts. If you fail to pay the amount owed, the debt may be outsourced to a third-party debt collection agency.
HMRC has started to use these private-sector debt collection agencies more and more in recent years to pursue debts. These agencies are likely to send more aggressive reminders, threatening legal action or the seizure of goods.
HMRC Debt Collection Agencies include:
- 1st Locate (trading as LCS)
- Advantis Credit Ltd
- Bluestone Credit Management Ltd
- BPO Collections Ltd
- CCS Collect (also known as Commercial Collection Services Ltd)
- Moorcroft
- Oriel Collections Limited
- Past Due Credit Solutions (PDCS)
Step 2: Control of Goods (Distraint)
If initial reminders do not work, HMRC or a certified bailiff contracted by them may take action to take control of goods or property at the company’s registered address. This is a formal process known as distraint. The goal is to sell the goods at auction to settle the debt.
The officer will send a Writ of Control and a Notice of Enforcement to the debtor, giving them 7 clear days to either pay in full or negotiate a payment plan. If the debtor doesn’t sign a Controlled Goods Agreement, the officer can make arrangements to remove the goods for sale.
While the value of goods may not be enough to cover the debt, the threat of seizure is often enough to focus minds and find funds from elsewhere.
Step 3: A Winding-Up Petition
If all other methods fail, HMRC may issue a winding-up petition as a last resort. This means HMRC will instruct its solicitors to petition the court to rule that the business is insolvent and should be closed.
A winding-up petition prevents the debt from getting any worse, as the company will be forced to stop trading. In most cases, it is unlikely that HMRC will get its money back, but the threat of this action can be very effective.
