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There has been a fourfold increase in the number of businesses having their assets seized by HM Revenue & Customs, as a result of late payment. According to recent figures from McGrigors tax law firm, HMRC exercised its “distraint powers” in 7,004 cases in the 2010-11 tax year, in comparison to the 1,675 figure for 2008-09.

HMRC is legally allowed to seize goods and assets without getting a court order, one of a limited number of bodies allowed to do so. Until 2003, HMRC held a preferred creditor status; this meant that HMRC would have to be paid before any other creditor if a business entered into liquidation or administration. However, since 2003 this has no longer been the case and may be one of the reasons why HMRC are demonstrating increased use of its power of distraint.

By increasing the number of distraints, HMRC are making it harder for other creditors to recover debts. According to McGrigors, HMRC may be stepping in too quickly without considering the company viability in the medium term.
The Time To Pay scheme was introduced in 2008 to help businesses who were experiencing difficulties in the short term. However, in the last 12 months, the number of businesses accepted on to the TTP scheme has reduced significantly, from 30,160 in 2010 to 15,490 in 2011. A spokesman for HMRC said:

“HMRC purely uses its powers to seize assets of businesses who owe us tax when all other avenues have been entirely exhausted. Only a very small number of businesses who have long term outstanding tax debts are collected in this way.”

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