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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Debt and return pursuit: VAT: pre-enforcement action: what debts can and cannot be enforced

Any debts which have been referred for clerical action will need to be reviewed to:

  • distinguish between enforceable and unenforceable debts
  • determine which debts can be legally enforced.

Only enforceable debts should be advised to IDMS but there may be debts that are either immature or temporarily unenforceable that are advised from the VAT Mainframe due to the timing of the enforcement runs.

Enforceable Debts

An enforceable debt is one, which is correct and can be legally pursued; for example, a VAT return that has been submitted and has not been paid in full by the designated due date.

If a VAT return has not been submitted, a ‘Central Assessment’ of tax due for the period will be raised which, when advised to IDMS, becomes the debt which can be chased. This appears on VISION as ‘Tax Assessment’. An Assurance Officer may raise an additional assessment, if it is found, for example, that VAT returns have been understated. These additional assessments are also known as ‘Officer’s Assessments’ or ‘O/As’, and appear on the VISION ‘SL’ screen simply as ‘assessment’.

Unenforceable Debts

An unenforceable debt is a debt, which cannot be pursued because e.g. it is immature or subject to review, or appeal. Debts subject to appeal or internal review should have the appeals indicator or appropriate review code set on VISION and will be managed on DTR by the central DMB suspended debt team. When DMB are advised that the appeal/review is completed the debt will be added to IDMS.

Other criteria for suspending debts can be found in the DMBM531500 VAT suspended debt guidance. DMBM950040 also contains guidance on signals set for debts which may be temporarily suspended.

Immature debts

Debts such as officer’s assessments and civil penalties cannot be pursued immediately because a period for appeal is allowed.

You should suspend the debt for thirty days from the date of issue before enforcement action can commence.

Internal reviews

The customer has 30 days from the imposition of an officer’s assessment in which to appeal after which the debt is enforceable.

Should the customer appeal against an officer’s assessment, the local VAT Office or a centralised regional appeals and review team will review the case.

The decision maker should advise DMB that their case is under review by emailing the VAT SPoC. They should confirm that they have set the appropriate appeal/review code on the VAT Mainframe. On completion of their review they should advise the VAT SPoC that their action is complete and confirm the appeal/review code has also been lifted.

The debt management technical office must allow a further 30 days to pass before recovery action can commence on any balance remaining as the customer has the option to appeal to the tribunal.

A complex or contentious assessment may take a number of years to be resolved.

Default Surcharge

If a customer consistently fails to render VAT returns, or does not pay a submitted VAT return in full by the due date, a default surcharge will be applied on a rising scale as a percentage of the tax declared for the period.

A review must be requested in writing by the trader within 30 days of the issue of the surcharge notice. The request should give the trader’s reasons for thinking the surcharge is wrong. If they do not agree with HMRC’s view of the matter once the review has been concluded they can then appeal to an independent tribunal.

Alternatively, traders who have been surcharged for a late payment of VAT can appeal against the surcharge directly to an independent tribunal, without asking HMRC for a review. The debt becomes enforceable after this time period.

The surcharge element of any debt will be suspended in the event of an appeal and will not be pursued until the outcome of the review has been notified to the customer.

If the surcharge is imposed on a tax assessment and the customer subsequently submits the return, the 30 days starts from the imposition of the initial surcharge, not the recalculation date.

If a customer has a time to pay arrangement and within the duration of that arrangement the customer fails to submit a return in full by the due date then a default surcharge will still be incurred for that period.

The Default Surcharge Appeal and Review Team have 45 days to review a case from date of receipt. Where an immediate decision cannot be made on the first day, in other words further information is required, the appropriate Officer will set the appeals indicator on VISION.

DS debts may be referred to IDMS within this period of time. If so, and contact is made by the taxpayer to DMB or is picked up by a DMTC call, a next action and BF should be added to IDMS until after the 45 day time period has elapsed.