0800 901 2475 Menu

HMRC and distraint – what are their powers?

Any creditor can serve a Notice of Enforcement if they obtain a court order. HMRC do not need a court order, but they must still stick to strict regulations in order to retrieve debt.

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:

  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

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.

Find out more about CVLs

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.

Find out more about CVAs

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.

Authored by Lisa Hogg

Lisa Hogg

Director & Licensed Insolvency Practitioner