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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Debt and return pursuit: VAT: understanding the customer: understanding deregistered customers

When you are identifying appropriate intervention, you are using a risk and compliance based approach to target action. This action is designed to have a meaningful impact on the customer by delivering a positive outcome within a set timescale.

Under campaigns, deregistered taxpayers are managed within their own segment which allows them to follow the appropriate recovery strategy.

Reviewing the taxpayer’s situation

Sole proprietors and partners stand to lose more when a business fails as they have no limited liability status and their personal assets are at risk (personal savings, house, car etc). They can be obliged to settle using personal income from say paid employment whereas a director can effectively walk away from liabilities generated by their limited company.

It should be easier to convince a sole proprietor or partner of the need to pay the VAT debt than a director of a limited company as they have more potential risk. Directors of limited companies rarely become personally liable for their debts.

Limited company debts where trading has ceased and no future revenue risk is apparent are suitable for write-off.

If there appears to be a future revenue risk from a new registration that you become aware of, contact the Security team (Special Civil Investigations) to see if a referral may be appropriate to protect the revenue from the customer’s new business.

Contact with deregistered customers

If a campaign demand letter is not the first action or has not produced payment, telephone contact may be the next action. Where previous compliance was good, phone contact will often result in immediate payment.

Ideally contact should be made with the sole proprietor, partner or director (the business principal) to discuss the debt. Previous contact may have been made by the bookkeeper, accountant or someone from the accounts department so this may be the first time we have spoken to the business principal.

The business principal will usually be the best person with whom to assess the prospects for recovery. This is especially the case with sole proprietors and partners who are personally liable for business debts. Questioning them concerning their current and future plans may reveal potential sources of funds (employment or new business) or inability to pay (seeking a job/claiming benefit) making decisions for the next appropriate recovery action easier.

Deregistration of a taxpayer with a poor compliance record could be a positive result in itself as they will no longer be trading and building up debts. It is unlikely that we will obtain payment in these cases without taking coercive action.