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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
Updated
, see all updates

Debt and return pursuit: VAT: understanding the customer: habitual defaulters

Habitual defaulters are taxpayers who have had a previous default.

Habitual defaulters historically also known as persistent defaulters can be further divided into ‘Can’t Pays’ and ‘Won’t Pays’.

The ‘Can’t Pays’ are non-viable businesses and should be removed from the system as quickly as possible to protect future revenue from their continued trading and non-payment.

The ‘Won’t Pays’ are businesses that have the ability to discharge the debt but for whatever reason choose not to do so. DMB will look to obtain payment and future compliance from the ‘Won’t Pays’ who are often viable businesses.

Under campaign working, both ‘Can’t Pays’ and ‘Won’t Pays’ will be subject to increasingly assertive recovery techniques designed to obtain either compulsory compliance or removal of the customer from the system.

Identification of persistent defaulters

If a taxpayer record exists on IDMS, the taxpayer has previously been reported to Debt Management. Closed work items on IDMS show they had previous debt management history and those debts are now paid.

Open work items means there is also a current debt.

In order to establish whether a taxpayer is ‘Can’t Pay’ rather than ‘Won’t Pay’ you would need to look at the taxpayer’s behaviour and circumstances to see into which category they more closely fit.

In assessing the difference, you may take a different approach in dealing with the taxpayer.

By considering the taxpayer’s circumstances and behaviours, it can be established whether the taxpayer is a case where previous educational assistance has failed to result in compliance or where a supportive approach may resolve their difficulties.

All discussions with the taxpayer should be noted on IDMS. If requested, taxpayers do have the right to see notes HMRC have made. Notes should always be factual and care should be taken to avoid subjective comments.

Contact with habitual defaulters

Educational and supportive telephone contact will not resolve the debts of the majority of habitual defaulters. Historically, it has been found that the taxpayer will initiate the majority of phone contact meaning Debt Management will be forced to react to their call.

The taxpayer will normally be looking for time, typically TTP but also time for someone else to do something for them for example, prepare accounts, VAT returns, re-mortgage or meet with the bank. Alternatively they will be disputing some or all of the debt or be confused about its makeup, they will ask for additional information or in the case of a dispute say they have written to a visiting officer or that their accountant is dealing with it.

You should use phone contact as an opportunity to let the taxpayer know what action you are taking. If you are forced to delay action, set a short deadline. Tell the taxpayer what the deadline is and what recovery action will be taken after that.

When dealing with habitual defaulters, you should be specific. The taxpayer needs to understand how seriously we view the situation and the choices that our action will offer to them - compliance or cessation of business via enforcement or security action including the possibility of prosecution.