In the past couple of years, the extent to which HMRC actively pursues the collection of unpaid taxes has increased markedly.

Now, it is taking a much more proactive strategy in a bid to boost the public purse and reduce the number of companies dodging their VAT requirements, missing PAYE payments, not paying corporation tax on time and their NIC obligations.

One of the tax collection methods to come more commonly into use is the distraint order, which allows HMRC to repossess company assets to claw back tax payments.

What to Do if You've Received a Distraint Order Notice?

Definition of Distraint Order

A distraint order gives HMRC the power to seize company assets without petitioning the court. This type of order will usually only be used if HMRC has made repeated attempts to collect the money without success.

HMRC Distraint Order (Notice of Requirement)

The recipient is given two options – either sign the distraint notice and pay the outstanding sum in five days or the items will be sold at public auction; or, choose not to sign the notice and HMRC will seize the goods immediately.

Why Have you Been Served a Distraint Order?

In the vast majority of cases, HMRC’s first method of recourse for unpaid tax liabilities is to attach a surcharge to late payments.

HMRC will only make a distraint order if you have been contacted a number of times and still fail to make the payments.

The worst thing you can do if you receive a distraint order notice is to ignore it, as this is not a problem that’s going to go away.

On receipt of the distraint order you have five days to respond to the notice and make the payments or HMRC will take possession or your assets to recover the outstanding debt.

If you fail to respond in time, a distraint officer will knock on your door to take an inventory of your assets.

Who can Serve a ‘Warning of Enforcement by Distraint’ Letter?

HMRC is not the only organisation that can serve a distraint notice. If you’re struggling to pay your National Insurance contributions, PAYE or VAT, there’s a good chance you’ll also be unable to pay other company creditors.

Third party creditors can also serve a distraint order against you; however, the crucial difference is that only HMRC and landlords can do so without having to go to court. This additional requirement reduces the likelihood of receiving a distraint notice from any organisation other than HMRC.

Relevant for any Type of tax Liability

An HMRC officer can serve a distraint order for any type of tax liability. The officer has the power to enter your premises to inventory your business and serve the order.

If you are late paying your National Insurance contributions, a tax officer will usually only call on you during the normal hours of business. However, for a VAT debt, they can call between the hours of 8am and 8pm. The only exception is if your business operates outside ‘normal’ working hours.

Notification by an HMRC Officer

Before a distraint order is served you will usually be visited by an HMRC officer. They will want to know why you haven’t your tax liability to determine whether you are a business that can’t pay, or a business that won’t pay. If HMRC feels you are simply unwilling to pay, you can expect a distraint order to be issued.

If the business can’t pay you may be able to make Time to Pay arrangements. If you either fail to keep up with payment plans previously agreed with HMRC, or have simply ignored warnings following the non-payment of arrears, you may also receive a distraint order.

When making the distraint order, an HMRC officer will visit your place of work without notice to discuss the amount you owe.

At this point, they will also take an inventory of your business assets and issue the distraint notice for you to sign. In the meantime, you will not be allowed to remove or dispose of assets which are under distraint.

What Should you do?

If an HMRC officer comes to your premises they are not allowed to force entry without a magistrate’s warrant. So, always agree to meet them outside the premises.

By preventing the HMRC from seizing your goods you are giving yourself a short window of time to make the payment or seek professional help.

At Company Debt we offer a free initial consultation to discuss the best logical step for you to take. We can act on your behalf when dealing with HMRC and help you find a way to access the funds you need, or negotiate a Time to Pay arrangement. For more information, please get in touch today.