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 regulations which HMRC must stick to, 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 to when a notice of enforcement is being served. It is a seven-day process from the receipt of the notice.

HMRC visit

An 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 taken. 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 officer’s 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 vans/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.

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.

Case Studies

K2 Technologies Ltd and K2 Thermal Imaging Ltd

Kelly Burton • Service Agency • Administration

Wilson Field has helped secure the sale of two related North East businesses, which developed and manufactured thermal imaging equipment, as a going concern to Cenergem Limited backed by a group of local investors not associated with the current management.

Kelly Burton and Joanne Wright from Sheffield-based insolvency specialists Wilson Field were appointed joint administrators of Darlington-based K2 Technologies Ltd and K2 Thermal Imaging Ltd on 25 July 2016.

The two companies had experienced cash flow problems following a sharp decline in the demand for their products due to increased global competition in the market over the last 18 months.

The sale, which resulted in six of the current eight jobs being saved, was achieved by Wilson Field, working alongside valuers and asset management consultants Charterfields, who handled a number of enquiries and Mark Wilkinson, insolvency partner at Shulmans Solicitors in Leeds.

Kelly Burton, director and licensed insolvency practitioner at Wilson Field said:

“During the past 12 to 18 months K2 had begun to experience increased competition in the market. Competitors had started to manufacture and sell similar products at a lower price, meaning the company had seen a sharp decline in the demand of products and a resultant shortage of cash flow.

“Our job was to realise a sale of K2 as a going concern to achieve the best return for the company’s creditors. There was significant interest from a number of parties. The resultant sale has also saved six of the eight jobs.”

K2 Thermal Imaging Ltd and its predecessors were involved in the development of three products establishing the company as a pioneer in thermal imaging.

The company designed and engineered three main product ranges for extensive use in the marine, firefighting and industrial sectors, allowing operators to enter smoke-filled environments to detect and rescue people with a hands-free application, therefore improving success rates in recovery.

Care Homes Claims and MS2U

Kelly Burton • Financial Services • Pre-Pack Administration

Jobs have been preserved at a Leeds-based group of claims companies after they were bought out of administration in a pre-pack sale.

Care Home Claims and MS2U worked with customers who had been mis-sold financial products and services including PPI or had been overcharged on care home fees.

Joint administrators Kelly Burton and Lisa Hogg from Sheffield-based Wilson Field were called in by the directors when the group faced financial difficulties.

The business and assets of the companies were sold for an undisclosed sum to Acquire Inc Ltd. As part of the deal, 32 employees of an associated company transferred to the purchaser.

Group managing director Joseph Battle said:

“Problems were encountered as a result of an unprofitable contract and accrued HMRC arrears which lead to a severe cash flow shortage. We took professional advice and worked with the administrators to enable the business to continue as a going concern and preserve jobs of existing staff. Despite this being a very difficult time, the outcome means the business can continue.

“With the same management team, we can assure clients the same high level of service in the future.”

Kelly Burton, director and insolvency practitioner at Wilson Field, added:

“These companies ran into difficulty following the over calculation of work in progress on a contract, coupled with an accumulation of HMRC arrears. The directors contacted us for advice and have worked closely with us to achieve this result.

“We are pleased that the restructuring of these companies has resulted in the businesses continuing to trade via the successor business.”

Statestrong Limited

Kelly Burton • Manufacturing • Administration, Creditors' Voluntary Liquidation (CVL)

Insolvency experts at Wilson Field have helped turn around the fortunes of a loss-making manufacturing company in Lancashire providing a new future for its 80 employees.

Businessman Russell Blaikie acquired the struggling 40-year-old Statestrong Limited, headquartered in Lytham St Annes, through a pre-pack sale and has been able to help the company immediately utilising his expertise in manufacturing and management.

Arrangements for the purchase of Statestrong’s business and assets were negotiated by Sheffield business specialists Wilson Field, who effected the sale shortly after being appointed.

The company, which manufactures and supplies aerosol and liquid products for use in health and beauty, household, automotive and industry globally, posted sales of £12m last financial year, but had suffered pressure from creditors with outstanding arrears.
The total value of the deal is undisclosed but includes the business and the assets of the company based on Boundary Road in Lytham St Annes and Tarporley in Cheshire, which will now trade as Statestrong Products Limited.

Mr Blaikie said:

“Transactions of this nature are sensitive and require careful handling. The team at Wilson Field provided exactly the right professional approach.”

Wilson Field’s insolvency practitioners Kelly Burton and Joanne Wright worked closely with Mr Blaikie along with senior corporate case administrator Gareth Kinneavy.

Kelly Burton, said:

“The company had a wealth of expertise but was straddled with financial liabilities which ultimately made its future questionable. Looking forward, a previously distressed business now has a viable future.”

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