By Maximilian Clarke

The past 2 years have seen 400% increase in the number of businesses paying their taxes late and having their property seized by HM Revenue & Customs, a tax lawyer has said.

The 12 months to April saw 7004 businesses’ assets seized- up from just 1,675 in 2009.

Specialist late-payment and tax law firm McGrigors say that in some cases, HMRC’s use of distraint may be over-zealous, seizing the key assets of businesses that might otherwise recover, including the very assets that a business needs to trade through its difficulties, and effectively forcing them to cease trading.

They point out that the seized assets are generally sold off at ‘fire sale’ prices that do not cover the full tax liability in question, and also reduce the chances of other creditors being repaid.

“HMRC is under huge pressure to collect unpaid tax, but at the same time they are facing cuts in their staffing levels,” said Stuart McNeill, Partner in the Litigation and Dispute Resolution team at McGrigors.

“It is almost inevitable that this is resulting in a more aggressive approach and short cuts, but as well as having drastic implications for late-paying businesses and their other creditors, it may also be counterproductive.”

“By barging in and selling the assets of a late paying company without making a proper commercial assessment of the firm’s medium term viability, HMRC risk sacrificing full payment in a few months’ time for far less cash up front.”

McGrigors point out that HMRC’s actions may also have wider implications for the UK economy by forcing some companies into insolvency. This is despite HMRC’s commitment to helping businesses weather the effects of the economic downturn by giving them scope to negotiate late payment of their taxes through the ‘Time to Pay’ scheme.

The recent jump in the use of ‘distraint’ is an acceleration of a generally more aggressive approach to business debt recovery adopted by HMRC since losing its ‘preferred creditor status’ in 2003. This has previously ensured that HMRC was paid in full ahead of other creditors when companies went into administration or liquidation or entered into Company Voluntary Arrangements.

“HMRC, having lost preferred creditor status, may be seen as using their sheer size and muscle to jump to the front of the queue, damaging other creditors’ chances of recovering debts in the process,” continued McNeill.

“But perhaps even more worryingly, if they don’t take an informed commercial view they may be dealing the killer blow to some companies with a good chance of survival and increasing the unemployment figures to boot.”

“Anecdotal evidence suggests that businesses who repaid debts once before under the ‘Time to Pay scheme’ are now finding it nearly impossible to get a second chance to use the scheme, despite their track record of repayment. Combined with the increased use of distraint, this could mean that viable businesses are being denied a vital life line.”

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