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Winding up petitions by HMRC fall but distraint is up.

16 July 2013

HMRC issued 42% fewer winding up petitions in the UK in the financial year 2012/13 to wind up companies than they did in the previous year.  Winding up petitions are now at the lowest figure in five years. In Scotland the number of winding up petitions issued fell by 68%.

Pinsent Masons said that HMRC issued 3,733 petitions for winding up companies in 2012/13, compared to 6,440 in 2011/12.

However the use of distraint by HMRC has increased.  We are increasingly coming across small businesses that have had a visit from the HMRC field officer.  The latest figures available for distraint show a significant increase.  According to Syscap, the finance providers,   HMRC have used distraint to seize business assets – 4,746 times to collect VAT in 2012.  This represents a 98% increase on the 2,401 times it used these powers to recover overdue VAT in 2011.

Serena McAllister, senior associate in restructuring at Pinsent Masons, said “The drop in petitions to wind up companies and place them into liquidation, combined with evidence that suggests HMRC is increasing using its powers to seize business assets, show that HMRC is now using distraint as its preferred method of enforcement.

“This tactic appears to be paying off as HMRC’s recovery rate has increased significantly, which is good news for the taxpayer although not so good news for businesses."

What can you do about distraint?

Effectively if you do not reach a deal or pay in full the field officer or their agents can remove and sell the assets in 5 days. To sell the assets, after they are covered in this way is a criminal offence. If the bailiff has obtained a walking possession he can force entry to recover the goods after the 5 day period.

Threats of distraint or legally taking possession of goods should not be ignored. If you do not agree that you owe the tax demanded, you should tell the HMRC officer, but you will find that he/she is in a non-negotiable position once he/she is on the premises.

It is not too late to rescue the business though as you could agree a time to pay deal or even a CVA.  Call us for details on 0800 9700539

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