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HMRC and distraint – what are their powers?

HMRC, as a government agency, have the legal authority to seize your business’ assets and sell them at an auction in order to settle unpaid tax & VAT bills. They have the power to do this without a court order and this is termed as “distraint”.

What is Distraint?

Distraint is an enforcement action that is sometimes referred to as “levying distress”. A field officer from HMRC may reference the action he is taking as “carrying out a distraint”.

The process to levy a distraint is as follows:

HMRC Visit
A HMRC field officer will visit the business address (or home if the company registration is there) usually without notice. Their first task will be to make contact and make sure they have the correct address, etc.
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 “distraint notice and inventory form” or a C204 form.
List of Items
Only items that belong to the company can be listed. For a full breakdown of what can and cannot be listed, see below.
Copy of Inventory
The officer will make sure to give a copy of the inventory to the company.
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. PLEASE NOTE: IF THERE IS A REFUSAL TO SIGN C204, THERE IS A DANGER OF HAVING ASSETS LISTED ON THE INVENTORY SEIZED IMMEDIATELY.
Payment Deadline
The debtor is given five days to arrange payment. It may be feasible to arrange a new “time to pay” program at this point. HOWEVER, THE COMPANY MUST ACT QUICKLY if they are to have any chance of renegotiating payment terms.
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.
If full payment is not received or “time to pay program” is not agreed, the HMRC officer will return. Upon their return, they will seize control of assets that are in the inventory, and they will be sold at public auction.

What possessions/assets can be included in the “distraint notice and inventory form”?

The inventory might include:

  1. Company vehicles such as vans / lorries / company cars.
  2. Heavy plant such as diggers, dumper trucks.
  3. Machinery such as lathes, upright heavy duty drills
  4. Office equipment such as printers / fax machines / computers.
  5. Company office furniture such as desks and filing cabinets
  6. Telephones and telephone systems.
  7. Company stock

The inventory will not include:

  1. Personal assets the company has “loaned” such as a car used for business appointments but is owned by the director personally.

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).

The HMRC agent must always provide the debtor with a certificate showing who they are and who they represent. They are also under obligation to show a warrant if there is a request to see it. 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.

What if there is a disagreement with the amount that is claimed as owed?

If there a dispute for the amount owing, this is something to discuss with the creditor 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 the business cannot be saved, then we can immediately arrange to have the company put into creditor’s voluntary liquidation (CVL). This is so the risk of wrongful trading and director’s personal liability is lowered.

If there is a wish to continue trading, but the debt cannot be paid straight away, then we can advise on options. These could be company voluntary arrangements (CVA’s), administration or pre-pack administration. Whatever the decision, acting quickly is essential to a positive outcome.

Call us today to discuss options. Do not leave it until the business is irrevocably compromised.

Authored by Phil Meekin

Phil Meekin

Head of Marketing

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