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HMRC internal manual

VAT Business/Non-Business Manual

Specific issues: services provided with the recovery of debts in England and Wales

High Court Judgments and County Court Judgments transferred to the High Court for enforcement.

(a) The offices involved

When a creditor:

  • gets judgment in the High Court against a debtor; or
  • where County Court judgments are referred to the High Court for enforcement

the enforcement process is directed to the High Sheriff of the County concerned.

The High Sheriff appoints an Under-Sheriff and others to collect the money owing to the creditor together with enforcement costs. The High Sheriff does not take an active part in the recovery process and receives no personal remuneration.

All those concerned with the enforcement are regarded as holders of public offices. Apart from the High Sheriff their services are normally standard-rated. High Sheriffs are appointed by the Crown and are not seen as accepting their office in the course or furtherance of a trade, profession or vocation.

An Under-Sheriff is usually a solicitor in private practice. Their services are regarded as being supplied in the course or furtherance of their business. If an Under-Sheriff is:

  • a partner in a legal firm; and
  • the fees earned from Under-Sheriff’s activities are paid into the firm’s account or are otherwise accounted for by the partnership

their services are regarded as being supplied by the partnership and not by the Under-Sheriff personally.

The Sheriff’s Officer organises the activities of the bailiffs and, where necessary, the sale of the debtor’s goods. In some areas, they are a salaried employee of the Under-Sheriff. In others they are a self-employed sole proprietor or partner working either full- time as a Sheriff’s Officer or part-time as a Sheriff’s Officer with other business activities such as an auctioneer.

If they are not an employee their services are taxable. The position of bailiffs is similar to this.

The other people involved in High Court debt recovery work, for example locksmiths, auctioneers or removal men are also regarded as making taxable supplies in the course of their businesses.

(b) Nature and value of supply

The total fees and allowable expenses payable in respect of services provided by the different people involved are set out in the relevant Sheriff’s Fees Order. The value for VAT purposes is the amount each person gets as their share of the statutory fee and any expenses charged. The full amount charged, including tax, is recoverable from the debtor.

The services of Under Sheriffs and Sheriff’s Officers in the enforcement of High Court judgment debts and County Court judgment debts referred to the High Court for enforcement are regarded as supplies to the judgment creditors. Services of other people in connection with the enforcement of the judgment debts are supplies to the Under-Sheriffs or Sheriff’s Officers where appropriate.

Therefore, where:

  • the judgment creditors are registered for VAT; and
  • the debt relates to their taxable business activities

the VAT on the Under-Sheriffs and Sheriffs Officers enforcement services may be recovered by the judgment creditors.

Sheriffs are aware that, although judgment debtors pay the cost of sheriffs’ enforcement fees, the supplies are always to the creditors. VAT invoices for the services must be addressed and sent to the creditors. Any documents issued to debtors should make it clear that they are not VAT invoices.

County Court judgments

When a warrant is issued by a County Court for the recovery of a debt the recovery action is carried out by a bailiff who is a civil servant. VAT is not chargeable on the cost of their services because these bailiffs are employees.

Where necessary the Court will appoint independent businesses such as removal men or auctioneers to carry out specific duties. These businesses provide standard-rated services to the Court. The costs of enforcement, including VAT, are recoverable from the debtor.

Magistrates’ Court judgments

Court warrants/fines

Magistrates Courts hear many cases of minor misdemeanours and often impose fines as a result. Unlike County Court bailiffs, Magistrates Court bailiffs are not employees of the court system. They are separate people for VAT purposes. Therefore services provided by Magistrates Court bailiffs to enforce the Court fines are liable to VAT.

These services are supplies to the Courts and the tax on them is recoverable under section 41(3) of the VAT Act 1994 by the Ministry of Justice, under whose control the Courts fall.

Distress for rates warrants

Certified bailiffs involved in distraint procedures following the issue by a Magistrates Court of a distress warrant for council tax or business rates are regarded as holding public offices. The services of certified independent bailiffs in these circumstances are supplied to the creditor. The creditor is the local authority which instructs them.

The services of auctioneers, removal men and other tradesmen engaged by the bailiff are supplied to the bailiff. However, if an authority employs its own bailiffs the services of auctioneers and tradesmen are supplied to the authority.

Value of supply

The value of the bailiff’s services is the total amount of fees and expenses recovered under:

  • the Distress For Rates Order 1979 (as amended by the Distress for Rates (Amendment) Order 1989);
  • the Community Charges (Administrations and Enforcement) Regulations 1989; or
  • the Local Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989

plus any commission received from the local authority.

Recovery of VAT from the distrainee along with the other fees and expenses of the bailiff is allowed under:

  • the Community Charges (Administration and Enforcement) Regulations 1989, Article 3(4) of Schedule 5; and
  • the Local Non-Domestic Rating (Collection and Enforcement) Regulations 1989, Article 3(4) of Schedule 4

However, the earlier Distress For Rates Order 1979 was not amended to allow similar recovery of VAT. This meant that VAT on bailiffs’ fees could not be charged to and recovered from the distrainee. Consequently a special procedure was introduced.

Invoicing, accounting and input tax

To support their entitlement to input tax deduction a bailiff has to have tax invoices from the auctioneer, removal men or other tradesmen. The local authority needs tax invoices from the bailiff to support its claim under section 33(1) of the VAT Act 1994.

A bailiff can issue two separate invoices:

  • one for the commission; and
  • one for the statutory fees and expenses.

A bailiff may submit periodic invoices to a local authority for the total services supplied within the period. Where they do so, these invoices can show the individual charges as a single comprehensive total. However, the invoice must be cross-referenced to the documents relating to the individual fees included on the invoice. Copies of these subsidiary documents must be available for inspection at both the bailiff’s and the local authority’s premises.

Documents supplied to distrainees by bailiffs must be endorsed “this is not a tax invoice” so that they cannot be taken for tax invoices.

VAT incurred by bailiffs and other registered persons on their own overhead expenses may be treated as input tax and deducted in accordance with the normal rules.