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 (DM) will do if you refuse to seek an agreement, or cannot reach an agreement.
HMRC has a range of enforement measures that vary between England and Wales, Scotland and Northern Ireland. What measures are taken will depend on each individual case and the taxpayer’s circumstances. The measures that can be taken are:
- Taking possessions to cover the debt
- Recovery by taking money direct from your bank account (does not apply in Scotland)
- Recovery through County Court Proceedings
- Issuing a Summary Warrant in Scotland – visit Advice Scotland for more information
- Insolvency – see our page on bankruptcy
Taking control of goods
The Taking Control of Goods regulations apply to England and Wales and allow HMRC to remove and sell assets to cover debts. In Northern Ireland this is called distraint.
Threats to take control of goods should not be ignored. The procedure is:
- 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
- HMRC will then issue a formal Notice of Enforcement after which the taxpayer is given an opportunity to pay. If the debt is not settled then the officer visit again will list possessions and agree with the taxpayer what can be sold. The possessions can be sold after a written notice period of 7 days unless the debt has been paid or a payment plan started.
- The HMRC officer cannot force entry into your premises without a court order, and such orders are very unusual
HMRC will never take possessions that are essential to the taxpayer’s security, wellbeing or the running of a viable business. This includes items such as cookers and bedding. Tools of the trade are exempt up to a value of £1,350 but HMRC may consider taking tools in excess of this limit unless the items are essential for the runing of the business. Vehicles are particularly at risk.
If you do not agree that you owe the tax demanded, or believe it is a lot less, you should tell the HMRC officer.
There are flat fees for taking control of goods plus a fee based on the value of goods sold at auction.
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.
Home visits
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.
Direct Recovery of Debt
HMRC can 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. This applies to England, Wales and Northern Ireland. In Scotland, funds can be taken from a bank account via a Summary Warrant after a failure to pay.
There are stringent safeguards to ensure that taxpayers do not suffer undue hardship and that there is adequate protection for vulnerable individuals. The main safeguards 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 officeR 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.
There is more information on this here.
Dealing with County Court proceedings
When considering taking action in the County Court, HMRC have stated that they will consider carefully what enforcements options are appropriate and proportionate taking into account the taxpayers individual circumstances.
Charging Orders
This is an order of the court that stops a debtor from selling assets without first paying the judgement debt from the proceeds. Orders are commonly placed on property but can apply to other assets such as stcoks, shares, ISA’s. HMRC can recover a debt from the proceeds of property sale, either when the taxpayer sells the property or through an order to force sale. It is the court’s decision to grant an order.
HMRC do all they can to avoid forcing taxpayers to sell their home. To date, HMRC has only forced the sale of property where the taxpayer has multiple properties or has been involved in criminal activity.
A court can grant an Attachment of Earnings Order so that a debt is repaid via regular deductions from an employee’s wages. The order is subject to safeguards to ensure that the taxpayer has enough of their wages left to cover essential expenses. In Scotland this is called an Arrestment of Earnings Order.
Getting help
County Court claims, procedures and forms can be difficult, and you may want to get help.
If there are problems relating to the amount of tax due, or negotiating with HMRC, and you cannot afford to pay an accountant or tax adviser, you may contact TaxAid.
Advice on court procedures and forms is available from Citizens’ Advice Bureau and law centres. County Court staff can also be very helpful. The Money Advice Service website has detailed guidance on County Coourt Judgements and court procedures.
More information on the HM Courts and Tribunal Service can be found at https://www.gov.uk/government/organisations/hm-courts-and-tribunals-service.
