Enforcement action – including Direct Recovery of Debt
Problems paying your tax? guide
There is very little risk of criminal prosecution or imprisonment for tax debt. Some people fear that failure to pay tax on time may lead to criminal prosecution and imprisonment. In fact, this is rare. HM Revenue and Customs does prosecute some people every year, but these cases involve allegations of serious dishonesty or tax evasion. HMRC does not take such action just because someone has not paid their tax on time, or has difficulty finding the money to settle.
It is important to know what Debt Management and Banking (DMB) will do if you refuse to seek an agreement, or cannot reach an agreement.
In such circumstances, DMB will consider taking enforcement action, which will be one of the following measures:
- Taking control of goods for sale at public auction (sometimes known as distraint)
- Summary Proceedings in the Magistrates’ Court (this is very rare in England)
- County Court proceedings (or Sheriff Court in Scotland)
- Taking money from your bank account: called Direct Recovery of Debt. It applies in England, Wales and Northern Ireland and should only be used in exceptional cases. See below for more details.
Taking control of goods – If you live in England, Wales or Northern Ireland, HM Revenue and Customs may take some of your possessions for sale at auction, without a court order. This can happen even if the tax bill is estimated. (In Scotland, HMRC would need to go to court first. Recovery action would be by Sheriff Court officers and under the Court’s supervision).
Threats to take control of goods should not be ignored, but it may be reassuring to know that:
- The first visit should be from a member of HMRC’s “Field Force”. The job of the Field Force officer is to check the debtor’s address, and make face-to-face contact with them to see if matters can be sorted out without resorting to enforcement
- Field Force officers should be able to check your up to date tax position on the spot
- The HMRC officer should act within the law, and you need not fear the illegal behaviour that is sometimes reported of bailiffs who carry out the process for other debts
- The HMRC officer cannot force entry into your premises without a court order, and such orders are very unusual
HMRC may consider taking control of goods which you consider to be ‘tools of the trade’, if you have no other assets. Vehicles are particularly at risk. The fact that HMRC can seize goods and equipment without a court order means that all threats to take control of goods should be taken very seriously.
If you do not agree that you owe the tax demanded, or believe it is a lot less, you should tell the HMRC officer. The HMRC officer will not normally consider negotiations about time to pay, once seizure of goods has started.
What should you do?
Some people are very frightened by the thought of an HM Revenue and Customs officer turning up at their home and taking control of their goods.
The first thing is to ensure that you have done everything possible to pay the tax or reach an agreement with HMRC about paying by instalments. Sometimes this is not possible, and you may need to consider the following.
If you are upset at the thought of an HMRC officer turning up at your home, you might be able to persuade HMRC that such a visit would be unproductive because you have no assets worth seizing.
You could perhaps offer a list of the main items that you own, or agree to meet the HMRC officer at an alternative, neutral location. This may be appropriate if there are other people living at the address who might be concerned about a home visit from HMRC.
This is particularly likely to be so if you have a family member who suffers from poor health or stress, who might be very upset by such a visit. In such cases you may ask HMRC to call at a time when that family member is expected to be out. If this is agreed, it is a good idea to write a letter confirming what has been agreed.
If you are staying with friends or family, you should tell HMRC. HMRC may refrain from making a home visit to a ‘care of’ address – on the basis that the taxpayer owns nothing of value at the premises.
If HMRC will not agree and insists on a home visit, you have the right to deny entry. However, once you have opened the door you are considered to have given peaceful entry and cannot then stop the visit or recovery proceedings.
Points to note:
- HMRC does not normally take such action for debts below £100
- There are some goods that are protected from such action, in particular basic household goods and anything that is jointly owned with someone else
On the HMRC website
Technical guidance on taking control of goods (distraint) http://www.hmrc.gov.uk/manuals/dmbmanual/DMBM655000.htm
Direct Recovery of Debt
In England, Wales and Northern Ireland, HMRC was given powers in the Finance Act 2015, to take money directly from your bank and building society accounts, including funds held in cash in Individual Savings Accounts (but not from stocks and shares ISAs), where there is a debt to HMRC of £1,000 or more.
There are some safeguards. There main safeguard are:
- A minimum of £5,000 should be left across your accounts, after the payment is made
- You should be given a 30-day period, once recovery action has been started, to lodge an objection
- An HMRC office should meet with you face to face, before action for Direct Recovery of Debt is taken
There is a full list of the safeguards on the Gov.uk site here.
Before deciding whether or not to exercise the power to take money from your bank account in respect of a debt, HMRC must consider whether or not ‘to the best of HMRC’s knowledge’ the individual ‘is, or may be, at a particular disadvantage in dealing with the person’s Revenue and Customs affairs’.
There is more information on the this in the links below:
Direct Recovery of Debts – vulnerable customers guidance:
HMRC issue briefing: