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
Consortia Service Group
Kelly Burton • Service Agency • Pre-Pack Administration
A Cardiff security specialist has been bought out of administration saving all 44 jobs.
Zenith Security Specialists Limited was set up in 2009 providing manned CCTV security systems to national and private firms, local authorities and small businesses.
Trading as Consortia Service Group, the company was based at Cardiff Bay Business Centre and was taken over in January 2015 by director Ozma Nasir with a view to expanding the business.
Administrators Kelly Burton and Joanne Wright from Sheffield business turnaround experts Wilson Field were appointed joint administrators on 17 May after the company faced mounting pressure from HMRC in respect of PAYE and VAT arrears.
Miss Masir took advice from Wilson Field and the business was sold in a pre-pack administration to Consortia Services Group Limited as a going concern saving all 44 employees’ jobs.
Kelly Burton from Wilson Field said:
“Unfortunately, a number of the inherited on-going contracts were unprofitable. Despite attempts, the company did not have sufficient time to turnaround the business and was struggling to service both its on-going overheads and significant HMRC liabilities.
“Attempts were made to source further additional funding proved impossible and so the decision was taken to enter administration.
“Following discussions with the director, the business was sold as a going concern, safeguarding all 44 employees’ jobs and offering a better return for the company’s creditors than alternative options.
“The new company will be under the same management offering the same standards of service to its customers.”
ARB (Sound Vision Light Power) Limited
Kelly Burton • Leisure & Hospitality • Administration
Wilson Field has secured a new future for a Banbury headquartered events management company, which boasted clients including Crufts, Tour of Britain and Virgin London Marathon after it was bought out of administration.
ARB (Sound Vision Light Power) Limited was established in September 2014 and specialised in event hire including providing audio visual solutions equipment, hire and installation.
The company, which traded from Coton Cottage, Chacombe near Banbury, called in administrators from Sheffield-headquartered Wilson Field for formal insolvency advice.
The company, which has an impressive client list and relied solely on sub-contractors as and when needed, suffered VAT and HMRC issues as a result of a period of illness.
Kelly Burton and Lisa Hogg from Wilson Field were appointed as joint administrators on February 20 and concluded a pre-packaged sale of the business and assets for an undisclosed sum to ARB Motors Limited, lead by the same management team.
Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:
Wilson Field was brought in to look at the situation of the business.
The focus on the company had diluted during a period of illness of one of the two directors. A debt was due to HMRC and a repayment proposal was rejected resulting in the need to protect the business and assets via a formal insolvency procedure.
The pre-packaged sale means the business, which was an established player in event management at large scale events, has a bright future moving forward.
The loss of a major employee’s input through illness can harm an organisation and it is important for businesses to seek help should this arise. Timing is essential to keep focus on the business.
ARB has combined experience of more than 100 years and provided hire equipment such as indoor and outdoor PA systems, single and double-decker commentary units, street sound vehicles, exhibition TVs, stage lighting and mobile power in both primary and secondary distribution.
Crane Hire Business
Kelly Burton • Construction & Engineering • Pre-Pack Administration
The directors of a previously profitable crane hire business approached Wilson Field for advice following a significant downturn in turnover. The drop-off was caused by the nationwide lockdowns following the outbreak of Covid-19.
The business relied upon several large UK-based housebuilders for their income, who were also negatively impacted by the government restrictions.
The Directors attempted to restructure the business to minimise overheads. However, a winding-up petition was issued during this time, and with no funds available to pay the debt due, the Directors approached Wilson Field to explore the option of a pre-packaged administration.
After an extensive marketing period, a sale of the business and assets was achieved to an associated company, and saved all the jobs at the business.
Director and insolvency practitioner Kelly Burton said:
“The business was severely impacted when the country went into lockdown as lots of regular clients, were themselves unable to work and generate income. However, after working with the directors, we arranged a pre-pack administration, which saw the business and assets purchased, with all of the company’s employees keeping their jobs.”
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