Overview Of HMRC Distraint Order Notice
What is an HMRC distraint order notice? The pandemic saw a period of time in which HMRC showed a greater level of forbearance in collecting taxes, such as VAT, PAYE, Corporation Tax and National Insurance.
However, with the evolving economic uncertainty and recessionary influences, it appears that HMRC is now reverting to a more traditional approach in respect of debt collection.
A mechanism that is available to HMRC that is capable of being deployed is to utilise what is known and referred to as the Distraint Order. A Distraint Order enables HMRC to ascertain or acquire company assets in order to settle outstanding taxes due to it.
Entitlement Of HMRC To Distrain
The ability of HMRC to distrain arises by virtue of Section 61 of the Taxes Management Act 1970. This entitles HMRC to apply for a warrant from a magistrate.
When A Distraint Order Is Used By HMRC
The point at which a distraint order is used by HMRC will be after the party that owes HMRC has had a number of attempts made but payment has still not been forthcoming by the taxpayer.
Upon the receipt of the distraint order, the taxpayer has five days to deal with the notice and discharge the amount outstanding to HMRC, otherwise action will be taken to repossess assets to enable the debt to be discharged.
In effect, there are two choices for the taxpayer in that either they sign the distraint notice and discharge the outstanding debt within five days, or items will be seized and then sold at a public auction.
Which Parties Can Levy Distraint?
The parties that can levy distraint are essentially HMRC and a landlord.
Third party creditors can also levy distraint but only after going to Court and obtaining an order that enables them to levy enforcement through what is known as a warrant of execution.
Which Taxes Can HMRC Levy Distraint Over?
HMRC can levy distraint over all classifications of taxation in order to recover the amount outstanding that is due.
HMRC Distraint Procedures
HMRC distraint procedures will normally entail them paying the taxpayer a visit at the relevant company’s premises to seek to unscramble why tax has not been paid by the due date.
If you are unable to make payment of HMRC taxes, then there are options available to you to consider in respect of making payments, albeit delayed, but clearing arrears over a period of time, rather than losing business assets through an HMRC distraint order procedure. An example of such a process, which is available for taxpayers to consider, is time to pay arrangements.
It is possible in some cases to set these up verbally to begin with but, if that is not adhered to, then HMRC will insist on it being formally set out in a written document. This is unlikely however to be available to you if you have had a pre-existing time to pay arrangement that has not been adhered to.
If distraint is levied, you can anticipate HMRC will take an inventory of the assets that it can physically see available at the business premises. However, the assets which HMRC can levy distraint over are only those that actually belong to the taxpayer. It would be important to give notice to HMRC of any third party assets that may be situated at the business premises to ensure that those are not incorrectly distrained upon.
Action You Should Take
The action you should take is to treat a distraint notice with the seriousness that it duly deserves. Removal of your business assets can seriously hamper your ability to trade and could cause your company to go into liquidation.
The timeframe involved is only some five days where you can regularise matters if you have signed the distraint notice along with the inventory of the assets applicable.
If in doubt, get in touch as we can assist.
