How Does HMRC Debt Collection Work?
If you have received what is known as a ‘final opportunity letter’ from HMRC’s department of Debt Management and Banking, but failed to take action, the the next step may well be a visit from an HMRC Field Force or Distraint Officer, [1] Trusted Source – HMRC Internal Manual – DMBM510150 – Customer contact and data security or contact from a third-party debt collection agency appointed on their behalf.
Generally speaking once your business gets to the point of formal debt recovery action by HMRC you should assume they will continue to pursue your business right through to winding it up. The arrival of an HMRC officer in your place of business will likely not occur unless they have failed to secured payment over the phone, or if they perceive you are not cooperating with them.
If HMRC are chasing you to pay debts it can often indicate your business may be insolvent. Better outcomes are often achieved if you take the initiative by contacting an Insolvency Practitioners at this stage.
Feel free to contact us for a confidential, free chat to run through your options
Overview of HMRC’s Debt Collection Process
Notices of debt are usually triggered via HMRC’s powerful computer system. From here a succession of increasingly threatening letters will be sent, leading up to the decision to send out debt enforcement.
In some situations, debtors simply cannot be located, in which case (depending on the circumstances) there is the possibility of debt being transferred and or escalated to other parties. Two examples where this is possible are PAYE and National Insurance debt, though not in all cases.
Briefly, this is the HMRC debt collection process:
(1) Payment Reminders
These are usually in the form of letters, or SMS text messages. Usually it will be the relevant tax department chasing the tax debt outstanding and if remaining unpaid will be escalated to another department.
(2) Notice of Enforcement
Where debts are still unpaid, what is called a ‘Notice of Enforcement’ may follow at this stage. As its title makes clear, these notices announce HMRC’s imminent intent to enforce recovery of their debts.
(3) Enforcement Action (HMRC sends Bailiffs)
Formerly known as distraint, this stage means that HMRC instruct bailiffs to inventory, seize and then sell whatever assets it requires to settle the debts under the under The Taking Control of Goods Regulations. [2]Trusted Source – Legislation – The Taking Control of Goods Regulations 2013
If you need to know more about what right bailiffs have to seize your assets, read our article here.
Third party debt collection agencies should never visit you at your home or workplace, but instead use phone, SMS or letter. Only HMRC’s own enforcement team has the power to actually seize goods under ‘Taking Control of Goods’ regulations in England and Wales, (or ‘Distraint’ in Northern Ireland)
(4) Further Escalation
Where seizure of assets does not yield enough to satisfy debts, HMRC will escalate the matter.
Typically HMRC’s Debt Management and Banking (DMB) or HMRC Late Stage Debt Resolution departments will attempt to recover the tax debt. At this stage the threat of legal action against the company will usually be added to communications.
If the tax debts are substantial and VAT and or PAYE is involved other departments may get involved and escalate the matter considerably. The Securities Team and or The Fraud Investigation Service can get involved in addition to any other HMRC action.
HMRC additional action usually involves PAYE and or VAT and can lead to a Notice of Requirement (NOR) for a Security Bond and add Joint and Several Liability for the director and or any other named individual. Where PAYE debt is involved it can lead to the director being made personally liable using a Personal Liability Notice (PLN).
(5) Winding up Petition and Liquidation (HMRC Late State Debt Resolution)
If tax debts remain unpaid the escalation process will lead to the Enforcement and Insolvency Teams getting involved.
This department is based in Worthing and is the most serious tax department in the UK. This department will want the tax debt paid immediately or at the least a very short, detailed and realistic payment plan. If this is not forthcoming this department can start the process to close your company.
The final stage is for the tax debt to be transferred to the HMRC Legal Department. The HMRC Legal Department will issue a Winding up Petition to compulsory liquidate the company.
Are there any Time Limits on HMRC’s Debt Collection Powers?
Generally there are no time constraints on HMRC tax debts and the debt can even be transferred from generation to generation in some extreme cases.The practical time limits vary from situation to situation. Business Rates, for example can be collected for up to 20 years whereas income tax and VAT has no time constraints.
What Are Your Options if You’re Concerned about HMRC Debt Enforcement?
As a symptom of significant business distress, debt collection is an indication you should seek professional advice immediately.
Our team of professional limited company debt experts can help you understand the extent of your debt problems, and the practical solutions to tackling them. These may include proposing a Company Voluntary Arrangement – a structured repayment plan – with your creditors. Or it may require meditation with HMRC to gain you time to pay.
Please reach out for a free consultation, to get the help and advice you need.
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.
- Trusted Source – HMRC Internal Manual – DMBM510150 – Customer contact and data security
- Trusted Source – Legislation – The Taking Control of Goods Regulations 2013
