What is an HMRC notice of distraint and what to do if my company receives one?
An HMRC notice of distraint is an enforcement action that enables HMRC with the power to seize company assets without having to petition to the court. This type of order is typically used by HMRC if a company has failed to pay their tax bills and if they have made several attempts to retrieve the debts in question, with no success.
If you have received a notice of distraint, or you’re worried about your company receiving one it is important to take it seriously and act quickly, or face having company assets seized. We can help give you guidance and support as to your options in dealing with a notice of distraint.
What is a notice of distraint?
Distraint is an enforcement action that enables HMRC to use its resources to pick up any remaining debts it might have waiting from businesses. The first task will be to send out CCJs and hope that money is pulled in through the first time of asking.
Who can distrain?
HMRC are the only creditor that has the right to levy distress and have goods removed from the business premises. The assets can then be sold at auction, using the proceeds to pay the debt first and any surplus is given back to the business. Distraint is no longer available to landlords who must follow a new procedure called CRAR (Commercial Rent Arrears Recovery).
Although there are strict regulation which HMRC must stick too, they do not need a court order to carry out a distraint.
The HMRC agent must always provide the debtor with a certificate showing who they are and who they represent. The agent cannot force entry but may enter the premises through an open window for example. Once in, they can use passive force, but they are not allowed to be violent or forceful.
The process for HMRC to levy a distraint
There is a strict process which HMRC must adhere too when a notice of enforcement is being served. It is a seven-day process from the receipt of the notice.
- HMRC visit
- A HMRC field officer will visit the business address (or home if the company registration is there). There will be plenty of notice given and the company should have first received CCJs, so they will know HMRC intend to visit.
- Payment request
- They will then ask for payment. If the debt is not paid, or cannot be paid, the officer will make an inventory of the company’s assets, including stock. This will be on a Controlled Goods Agreement or a C204 form.
- Seizure of goods – Controlled Goods Agreement (CGA)
- Only items that belong to the company can be listed on a CGA, which is made by a bailiff. It is an inventory of items which can be take. The person owning the debt will be asked to sign the agreement, after which they have a further seven days to pay the debt before the items listed are collected and sold at auction. If the agreement is not signed, an enforcement officer can arrange for the immediate removal of the items listed.
- Check agreement
- If there is agreement that everything on the list belongs to the company and agreement to the terms of the distraint, the C204 paperwork needs signing. Usually, the assets on the inventory list can stay at the business premises and for use in day to day trading. There is to be no selling, moving to a different location or giving away of these assets.
- Payment deadline
- The debtor is given five days to arrange payment. It may be feasible to arrange a Time To Pay Arrangement. This is a government initiative which is designed to help companies repay their HMRC debts. However, the company must act quickly if they are to have any chance of renegotiating payment terms. It can be difficult to secure a new TTP if the company has previously had one which failed.
If there is a refusal to sign C204, there is a danger of having assets listed on the inventory seized immediately.
- Total payable
- The total amount payable will include the cost of the distraint and the officers time. The C204 form will have a list of the costs and a breakdown of the amount owed. So, on top of the total debt that is repayable, creditors will charge for the time taken to employ debt collectors. A small debt can soon spiral into something a lot more.
- Outcome
- If full payment is not received or a TTP is not agreed, the HMRC officer will return. Upon their return, they will seize control of assets that are in their inventory, and they will then be sold at public auction.
What possessions/assets can be included in the distraint notice and inventory form?
For limited companies, only items which belong to the company can be listed on the CGA. Sole traders, who don’t have the protection of limited liability can have personal items included on the list, as the owner is personally liable.
The inventory might include:
- Company vehicles such as bans/lorries/company cars.
- Heavy plant such as diggers, dumper trucks.
- Machinery such as lathes, upright heavy-duty drills.
- Office equipment such as printers/fax machines/computers.
- Company office furniture such as desks and filing cabinets.
- Company stock.
What if there is a disagreement with the amount that is claimed as owed?
If there is a dispute regarding the amount owing, it’s something to discuss with the creditors initially. In particular with the officer that calls on you. However, negotiation will not be possible once they have entered the business premises.
What are the options?
If an HMRC officer has called, or there has been a threat of distraint, then there are options, but only by acting quickly. If a notice of enforcement has been issued by HMRC it would generally suggest the business cannot be saved, then the best option may be to go into creditors voluntary liquidation (CVL). This is so the risk of wrongful trading and the director’s personal liability is lowered.
If there is a genuine possibility that the company could continue trading, but is unable to afford the debt straight away, there are formal repayment plans available. These could be through a company voluntary arrangement (CVA) or administration. However, if you have a debt to HMRC it generally suggests that the company is on its last legs and you face the prospect of liquidation.
In summary
HMRC are a very powerful creditor and who carry more weight than a standard creditor. Tax is a lawful requirement, so HMRC will look to claim every bit of unpaid tax available. Distraint is a term used to describe the extra power that HMRC has over a typical creditor. However, they do have to go through the first procedure of trying to get the funds through a CCJ.
How we can help
If you’re worried about unpaid tax bills, or have received CCJs from HMRC, then the most important thing to do is to act fast. The faster you act, the greater chance you have of preventing a winding-up petition, or in some cases bailiff action. We offer advice and help, with free face-to-face consultations nationwide, helping your company move forward regardless of the situation.
Case Studies
High End Fashion Retailer
Kelly Burton • Retail • Pre-Pack Administration
A high-end independent fashion retailer, operating from a well-established location found itself experiencing severe financial difficulties, following the closure of all retail stores during the two nationwide lockdowns caused by the Covid 19 pandemic.
The retailer did not have a sizeable online practice when the pandemic forced the closure of its flagship store, and sales ceased overnight.
In addition, the retailer had already committed to deliveries of the next season’s stock, which resulted in large balances falling due to suppliers, whilst the stock remained unsold.
Kelly Burton, director and insolvency practitioner at Wilson Field, said:
“Unfortunately due to the pandemic, all of the retail stores had to shut as the country went into nationwide lockdown. Without a solid online presence, the flagship store had its sales effectively stop overnight.
We were pleased to arrange a pre-arranged sale of the business and its assets, which meant that nobody lost their job.”
The Directors approached Wilson Field to explore the option of a pre-packaged administration. Following an extensive marketing campaign, the business and assets were sold to an associated company, and all jobs were saved.
Berks Healthcare Services Limited
Kelly Burton • Healthcare • Administration
Wilson Field has advised on the sale of a Slough-nursing agency which was bought out of administration saving all 7 jobs.
Berks Healthcare Services Limited, which traded as Enchor Healthcare Services, specialised in providing healthcare professionals for the public and private sector.
It supplied registered general and mental health nursing staff, together with unqualified support and ancillary staff, to private hospitals and care homes in the areas local to the company’s offices in Slough, Portsmouth, Birmingham and Luton.
The company, headed up by healthcare professionals, called in administrators from Wilson Field after suffering from a fall in turnover, which left it struggling to meet unsustainable historic legacy debt. It had also been issued a winding-up petition from HMRC.
Kelly Burton and Emma Bower were appointed as joint administrators on 14 June 2018 and concluded the sale of the business and assets for an undisclosed sum to an unconnected company Connect Care & Support Limited, also based in Slough.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said: “The company had a turnover in the region of £2.9m per annum in 2017. However this is a very competitive marketplace, which is primarily price driven and recent minimum wage legislation changes had also impacted on the company’s potential profit margins.
“As administrators, we sought a purchaser for the business.
“This pre-packaged sale to Connect Care & Support Ltd saved seven permanent jobs as well as numerous temporary agency staff.
“It has also mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay in lieu of notice estimated to total £29,576 as the liabilities have transferred to the successor business under the TUPE regulations.
“This means the business has a new future moving forward.”
Berks Healthcare Services Ltd was incorporated in January 2015, but can be traced back to February 2007. Enchor Health Care was recognised and registered as Recruitment Consultants providing both permanent & temporary staffing solutions to many different Health and Social Care settings. It also had supported living and rehabilitation centres.
LCP Pattern Book Makers
Kelly Burton • Manufacturing • Pre-Pack Administration
All 63 jobs at an Ilkeston company, which can trace its history back over a hundred years, have been saved following a pre-packaged sale. The original business operated by LCP Pattern Book Makers Ltd, which trades as Lee Colourplan Pattern Book Makers, started life in 1909 in the North of England, moving to Derbyshire in 1970.
Licensed insolvency practitioners Kelly Burton and Lisa Hogg both of Yorkshire-based insolvency specialists Wilson Field were appointed as Joint Administrators on 7th August 2017. The business and assets have been sold for an undisclosed sum to GB Patterns Ltd, a company managed by Gareth Bolsover, a former director of LCP Pattern Book Makers.
Kelly Burton, director and insolvency practitioner at Wilson Field said;
“The company enjoyed profitable trading in recent years but 2017 saw a 10% fall in turnover which created cash flow problems. This resulted in arrears with rent, HMRC and other suppliers.”
“GB Patterns Ltd bought the company with all 63 staff being transferred to the new company under TUPE. As well as saving jobs, the pre-packaged sale has mitigated employee termination claims estimated to total £414,018, resulting in a significantly better return to creditors”.
Kelly further commented;
“It is always good to see long-established businesses survive after facing difficulties. In this case with continued financial support from Regency Factors plc, we were able to work with all other parties to reach an outcome which would be in the best interests of creditors and at the same time preserve the business.”
Gareth Bolsover, owner of GB Patterns said;
“This has been an uncertain and very difficult period for the business but the continued financial support from Regency and advice from the administrators at Wilson Field has made the whole process less stressful. Working closely with them has meant we have been able to keep all 63 staff. The future now looks very positive.”
“With our strong reputation within our niche sector and with the same staff team, we are confident that the company has a viable future and is able to offer our customers the same high quality of products and service.”
The business will continue to trade from premises at Crompton Road, Ilkeston, specialising in the manufacture of fabric, wall/floor covering sample books, swatches, PVCU and cardboard binders, on behalf of manufacturing clients, including Colefax & Fowler and Laura Ashley.
Mark Wilkinson of Shulmans LLP, solicitors of Leeds advised and dealt with legal work with asset sales through Robert McArdle of David Currie & Co
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