Recent research from an independent finance provider has shown that HM Revenue & Customs’ (HMRC) use of distraint, whereby it seizes goods from companies with unpaid taxes and then sells them if the firm does not pay its bill within five days, doubled during the 2011-2012 tax year.
The department used distraint against businesses 10,577 times in the last tax year, meaning a 92 per cent rise in the practice in comparison with the previous tax year.
According to the research, HMRC has the power to visit a company’s premises without warning to collect unpaid taxes and can remove and sell its assets within five days without a court order.
In the past, the Revenue has used distraint only to meet unpaid payroll-related tax bills but that has recently been extended to recover a broader range of business taxes. The department has also toughened up on its willingness to negotiate a period of grace for payment.
This means that smaller firms, which often struggle at this time of the year when tax bills are looming, could be at risk, particularly if their cash flow is affected by late payments, so they should start some rigorous credit control now.
The problem with distraint is that goods are usually sold off at nothing approaching their real value by the taxman, so the proceeds of the sale may not even cover the outstanding tax bill, which means that the firm would still face court action to recover the balance.
This harder stance from HMRC is reflected in the fact that in the last tax year, the Revenue presented 57 per cent more petitions to wind up companies with unpaid tax bills than in the previous 12 months.
As an accountant, Sarah Jenkins, specialises in management accounting, business development and financial reporting.