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
Peak Toolmakers Limited
Kelly Burton • Manufacturing • Pre-Pack Administration
A Chesterfield machine tool manufacturer, which supplies to the global automotive industry, has been bought out of administration by sister-company, Peak Toolmakers (Assets) Ltd and managed by two of its current directors, saving all 46 jobs.
Peak Toolmakers Limited, based on Chesterfield Trading Centre on Smeckley Wood Close, had enjoyed a profitable trading history since 2004 and had significantly grown to become a recognised name in the sector.
However, a lack of working capital following a combination of factors together with a number of loss-making contracts with principal customers, competition from overseas, namely the Far East, undercutting prices, and extremely fast and tight timescales to allow its customers to meet contractual supply arrangements, had caused recent cash flow problems.
Insolvency practitioners Joanne Wright and Lisa Hogg from Wilson Field were appointed Administrators on 2 September 2015 to handle the sale out of administration.
The business and assets bought by Peak Toolmakers (Assets) Ltd managed by two of the existing directors, Geoff Bacon and John Buxton.
Joanne Wright from Wilson Field, said:
“Peak Toolmakers Limited had experienced financial difficulties after seeing a drop in demand from a major customer, a loss of more than £500,000 on a contract and was being threatened by enforcement action from HMRC due to arrears.
“The pre-pack deal has meant all 46 employees’ jobs have been saved and ensures a continuity of trading under new ownership.
“We are delighted to have secured a swift sale of this established Chesterfield-based manufacturing business to deliver the best long term solution for the business ensuring it can continue to serve its established customer base.”
Peak Toolmakers Limited’s main business was the production of mould tooling, jigs and fixtures and robot heads which were used in the injection moulding and die casting industries, principally the automotive industry, for internal and external trims together with under bonnet components.
Its customers produce products for a range of automotive manufacturers including Jaguar Land Rover, Nissan, Toyota, BMW and similar manufacturers.
Director Geoff Bacon said:
“Having gone through difficult times, we are very happy to have secured the loyal service of our staff through the help of Wilson Field.”
Wilson Field worked closely with solicitor Neil Kelly from MD Law in Sheffield and valuer and asset management consultant David Smith of Charterfields.
Bay Cleaning Solutions
Kelly Burton • Other • Pre-Pack Administration
Administrators from Wilson Field have helped safeguard all 245 part time jobs at a Welsh commercial cleaning company after it was sold in a pre-pack deal to existing management.
Joint administrators Kelly Burton and Lisa Hogg from Yorkshire-based Wilson Field were called in by directors of Swansea-based Bay Cleaning Solutions on 19 October 2017.
The company, based at Walter Road in Swansea, had seen significant growth over the last two years but increased direct costs and administrative expenses had rendered the company loss-making.
Cash flow problems had resulted in the accumulation of substantial tax arrears and other debt and despite attempts to seek increased borrowing and arrange a payment plan with HMRC, the company was placed into administration.
MRB Cleaning Limited bought the company with all 245 part-time staff being transferred to the new company under TUPE.
In saving all the jobs, Wilson Field mitigated employee termination claims in the nature of wage arrears, accrued holiday pay, redundancy and pay-in-lieu of notice which equates to almost £137,500, offering a better return to creditors.
Kelly Burton, director and insolvency practitioner at Wilson Field, said:
“We are pleased that the sale of the company to MRB has resulted in all 245 jobs being secured and that the business will continue to trade. This is a substantial number of jobs saved. We determined that a pre-packaged sale would be in the best interests of creditors.”
BCS has over three decades of experience in the field of commercial cleaning with its core business relying on high footfall premises such as pubs, clubs and restaurants.
It also worked in areas including commercial cleaning, specialist cleaning, building maintenance, student accommodation, end of tenancy, hard floor and domestic cleaning.
Robert McArdle of David Currie & Co of Manchester dealt with asset disposal while Shulmans Solicitors of Leeds handled the legals.
Precision Engineering Business
Kelly Burton • Construction & Engineering • Administration
A bespoke precision engineering business, working predominantly in the automotive and aeronautical sectors, found itself experiencing cashflow difficulties caused by an increase in costs due to the uncertainties surrounding Brexit, and the loss of a key member of the sales team.
When the company’s largest customer reduced its spending by 50%, the director felt the business couldn’t continue and sought advice from the team at Wilson Field.
Wilson Field marketed the business and assets for sale, and a sale of the tangible assets was completed immediately following the administrators appointment, to an unconnected third party.
Kelly Burton, insolvency practitioner and director at Wilson Field, said:
“With so many complications surrounding Brexit, coupled with the loss of some key staff, the company experienced some cashflow difficulties it could not get out of.
There was a positive outcome in the end as some of the tangible assets within the company were sold, which meant a good return for creditors.”
💬 Live Chat - Available
✅ Free confidential help & advice
If you or your company is in financial difficulty, I may be able to help you. Our phone lines operate 9am until 9pm - 7 days a week.
Chat With MeFor immediate help & free advice, please freephone:
Free Consultation
Request a free confidential telephone consultation from 9am - 8pm, 7 days a week.
Call Now
