Talk to us today in confidence0800 970053907833 240747

How does HMRC collect its debts?

16 May 2018

How does HMRC collect its debts?

HMRC is what is called a “sophisticated creditor” in that they know all the best methods of collecting in overdue taxes.  What is more they have economies of scale that ensure that it is worth their while to chase even small debts.

HMRC will use various methods to ensure that taxpayers pay what is due

  • Seizure of Goods
  • The use of penalties to deter non-compliance
  • Statutory demands
  • Winding up petitions

HMRC is responsible for all taxes and duties and there is no particular difference in the methods used for collecting taxes whichever type of tax it is.  VAT and PAYE are perhaps pursued more readily as they do make up the largest types of tax that a company pays.  VAT in particular as they company in question has in effect collected the tax from its customers and should pass it on to HMRC. 

The steps that are taken by HMRC

Reminders

In the first instance HMRC will start collecting in debts by issuing payment reminders and these can be in the form of letters and even SMS texts.  Failure to pay the amount owed may well mean that it is outsourced to a collections agency.  HMRC have started to use these collection agencies more and more in recent years.  The amount HMRC pays to private-sector debt collectors has risen by more than 500% in three years, suggesting it may be stepping up the pressure on people who cannot pay their tax bills.

The figure rose to £39.1m in 2017, which was 62% higher than the £24.1m that HMRC spent on these services in 2016,

Currently HMRC use 12 agencies to collect tax. 

These are listed below

  • 1st Locate (trading as LCS)
  • Advantis Credit Ltd
  • Apex Credit Management Ltd
  • Bluestone Credit Management Ltd
  • CCS Collect (also known as Commercial Collection Services Ltd)
  • Drydensfairfax Solicitors
  • Fredrickson International Ltd
  • Moorcroft
  • Past Due Credit Solutions (PDCS)
  • Resolvecall Ltd
  • Rossendales Ltd
  • Walker Love

These agencies are likely to start sending more reminders in a more aggressive manner threatening legal action or the seizure of goods.

Control of Goods

As registered bailiffs, the agency may well take action to take control of goods or property at the companies registered address to then sell on at auction in order to settle the debt.  This is known as distraint.  For more information on the regulations see here http://www.legislation.gov.uk/uksi/2013/1894/contents/made

The officer either from the HMRC, or a certified bailiff contracted by HMRC, is issued with a Writ of Control. They will then send the Notice of Enforcement to the debtor, on 7 clear days’ notice, excluding Sundays and bank holidays. 

This notice period gives the debtor an opportunity to contact HMRC and either pay in full or request/negotiate payment by instalments.

If payment in full is not made within this 7  day period or an instalment arrangement agreed, the officer will attend the debtor’s premises after the expiry of the 7 clear day notice period to take control of goods (formally called seizure). If the debtor doesn't sign a Controlled Goods Agreement (formerly Walking Possession) or makes payment in full, the officer can make arrangements to remove goods and sell the goods over which he has taken control (seized).

Obviously in many cases the value of goods belonging to the company is not enough to cover the costs of the debt.  However the threat of removal can focus minds and funds found elsewhere.

If the seizure of goods does not yield results then HMRC may as a last resort issue a winding up petition.

Winding up petition

Please refer to this page about the winding up petition process but in essence HMRC will instruct its solicitors to petition the court to rule that the business cannot pay its debts and should be closed and wound up.  This means that the debt to HMRC cannot get any worse as the company will stop trading.  It is unlikely in most cases that HMRC will get its money except perhaps in the more high profile cases such as with football clubs that are often saved at the last minute when faced with a petition.

Categories: HMRC Time to Pay Arrangement for VAT and PAYE, Winding up petition

The Ultimate Guide For Worried Directors

Worried about poor cashflow? How to win new work? How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today.