HMRC doubles powers

HMRC has doubled the use of its powers of distraint - entitling it to seize a debtor’s assets - over the last year, it has been revealed.

The taxman used such powers against businesses 10,577 times in the year ending March 2012, a 92% increase on the 5,520 uses of distraint over the same period the year before, according to figures obtained by Syscap, a UK finance provider to the professions sector.

HMRC’s power of distraint enables their staff to visit a company’s premises without warning in order to collect unpaid taxes. If the company does not then pay its tax bill within five days, HMRC is entitled to remove and sell its assets, which can include computers, vehicles and other key equipment, without a court order.

Philip White, chief executive of Syscap, said: ‘Distraint is every bit as medieval as it sounds. If a business’s assets are seized and it can no longer fulfil customer orders, then that could easily and quickly spell disaster.

‘HMRC is unlikely to be able to auction off the assets at anything like their real value to the business, and the proceeds of the sale may not even cover the outstanding tax bill. In those circumstances the business would still face court action to recover the balance. White added that the use of distraint appeared to be part of a tougher stance taken by HMRC against late-paying businesses: ‘At the start of the recession HMRC was showing leniency towards businesses struggling to pay their tax bills through its ‘Time to Pay Scheme’ but we are hearing that it is becoming far harder for businesses to negotiate a grace period through the scheme.

‘All the evidence now points to a much harder line from HMRC, at the same time that businesses are still unable to rely on the availability of bank loans and overdrafts.’

‘While HMRC treats removing a business’s essential ‘tools of the trade’ as a last resort, if the business does not have any other liquid assets to its name then it will have no alternative but to do so.’

Amongst the sectors facing major tax payments at the end of this month are law firms, which will have to pay tax on partnership profits on 31 January, followed by the bill for Q4 VAT on 7 February.