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HMRC internal manual

Debt Management and Banking Manual

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HM Revenue & Customs
Updated
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Debt and return pursuit: VAT: deregistered customers and revenue losses: debt recovery

Where the final return is made but not paid in full, you must check VISION to verify the due date of the return, prior to starting recovery action. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)  

The due date for final returns is one month plus seven days after the last day of registration (RI screen VISION dereg date) or one month plus seven days after the issue of the final return (R1 screen VAT 30 date); whichever is the later. For taxpayers using the Cash Accounting scheme it is two months plus the seven days. Otherwise wait until 30 days after the final period assessment has been issued.

It is important not to suspend recovery action for an existing debt while you are waiting for the final return unless:

  • the debt cannot be recovered by distraint
  • the final return is likely to be substantial and there is evidence that more of the debt can be recovered.

If distraint fails, consider county court proceedings (CCP). Further guidance on CCP can be found in DMBM665000 onwards.

Where distraint fails and CCP is not appropriate consider time to pay (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
  • (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Civil Recovery is costly and should not be recommended unless the debt is £10,000.00 or more.

For a limited company, a demand under the Insolvency Act 1986 S123 (1)(a) may be productive even if it is considered that actual winding up would not be cost effective.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

The recovery options available depend on what type of de-registration is involved.

Ceased to trade

As long as the owner can be contacted, it may be possible to obtain payment. You should send letters INDD10 or INDC40 as appropriate to the customer and try to phone them.

You can take distraint action and CCP can be taken as long as the case meets the appropriate criteria. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Transfer of going concern (TOGC)

If the owner of the old business is involved in the new one, future revenue may be at risk and security referral may be appropriate. However assuming the new business (i.e. sole proprietor or partnership) is profitable, payment may still be possible from the individual’s share. There may be evidence of the link between the two businesses in Electronic Folder or notes on IDMS.

Continuing to trade below the threshold

As the customer is still ‘live’, you can still pursue the debt. However there may be insufficient funds or income to pay it unless the customer is a service business or has an especially high mark-up. Time to pay may be the most appropriate solution, with removal of assets being a potential fallback option if the arrangement falls down.

Limited companies

For limited companies, the directors are not responsible for the debt because they have limited liability. This has certain implications:

  • if the company is no longer on the register at Companies House, there is no legal entity to pursue and the debt will have to be written off. However, if a company is dissolved we can apply to court for restoration of the company to the Register, to enable us to petition for the winding up of the company.
  • if there are no assets, stock or other funds, then there is nothing for the civil courts to seize and sell to repay all or part of the debt.
  • if there are only limited assets (i.e. below £6,000), the cost of liquidating the company and appointing a liquidator will not be fully covered.

However, if the company has established assets and/or funds to pay the debt, then civil recovery becomes a viable option.

Partnerships

In a partnership, all partners are jointly and severally liable, so they are personally responsible for the debt. If one partner has no income or personal assets, the remaining partners can be pursued for the debt - further guidance is contained within DMBM530130. The full range of ‘live’ recovery options is available: time to pay, security, distress and civil recovery.

Sole proprietors

Sole proprietors are also personally responsible for the business debts and can be pursued in exactly the same way as partners.