November 22, 2011
There has been a sharp increase in the number of companies whose assets have been seized by Her Majesty’s Revenue and Customs (HMRC) for late payment of tax. The number of times HMRC used it’s powers of ‘distraint’ was 7,004 in the 12 months to April 2011, up from 1,675 in the year to April 2009.
HMRC is one of the few bodies which can seize company assets without a court order. Until 2003 HMRC had preferred creditor status, which meant that the tax office would be paid ahead of any other creditors when a company goes into liquidation or administration. However this was changed in 2003 and it is thought that the increase in the use of ‘distraint’ powers is a result of the loss of preferred creditor status.
The figures were revealed by commercial tax law firm, McGrigors. Stuart McNeill, a partner at McGrigor’s, said: “HMRC, having lost preferred creditor status, may be using its sheer size and muscle to jump to the front of the queue, damaging other creditors’ chances recovering debts in the process.”
Mr McNeill however also pointed out that the approach being taken by HMRC may be counter productive. He said: “By barging in and selling the assets of a late paying company without making a proper commercial assessment of the firm’s medium term viability, HMRC risk sacrificing full payment in a few months’ time.”
HMRC has denied using it’s distraint powers too aggressively. A spokesman said: “HMRC purely uses its powers to seize assets of businesses who owe us tax when all other avenues have been entirely exhausted. Only a very small number of businesses who have long term outstanding tax debts are collected in this way.”
