Small businesses with outstanding tax liabilities are being warned that HMRC has doubled the use of its ‘power of distraint’, which allows its staff to make unannounced visits to firms’ premises in order to recover unpaid taxes.
According to finance provider Syscap, the taxman increased the number of times it used these powers from just over 5,500 in the year ending March 2011 to 10,577 in the year to March 2012.
New powers to collect unpaid business taxes
The power of distraint permits HMRC to visit a debtor’s premises without giving prior notice. If the debtor has not settled any outstanding taxes within five days, the tax authorities can then seize any assets for sale without the need to apply for a court order.
As with many other campaigns run in recent years, including those aimed at plumbers, teachers, eBay traders, and builders, it is clear that HMRC is adopting a ‘no nonsense’ approach to chasing unpaid or avoided taxes. In the past, this particular power was used mainly to collect unpaid payroll taxes, however the power of distraint is being increasingly used to recover a wide range of business taxes.
Unsurprisingly, Syscap says that business owners who are struggling to maintain a positive cashflow, or owe backtaxes should take action now to avoid having their assets seized with little warning being given.
HMRC distraint power ‘medieval’
Commenting on the news, Philip White, Chief Executive of Syscap, said that “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.”