Firms struggling to meet their tax bills are having their assets seized by HMRC. In the last two years the incidences of the Revenue using their distraint powers has risen from 1,675 cases to 7,004 as at April 2011.
HMRC's intolerance of tax debt flies in the face of its Time To Pay Scheme, which is supposed to support small businesses by negotiating a plan for late payments.
The Revenue has defended its actions by claiming that in 99% of cases, it receives the money it is owed before seizing assets. Seizure of assets is used as a last resort after all other alternatives have been ruled out.
Up until 2003, the department enjoyed preferential creditor status but since that has been removed HMRC is no longer able to recover the full tax debt when a company enters into liquidation. This, along with the increasing pressure to bring in revenue, may help to explain the department's eagerness to obtain quick cash.
Perhaps this is, however, short sighted, as assets that are seized are typically sold off at 'fire sale' prices which fail to repay the tax debt in full and also reduces the opportunity for other creditors to be repaid.
The Revenue could be trading less cash in less time for potentially more money over a longer period of time if they were to only exercise some patience and understanding and properly assess the commercial viability of a business and its future ability to pay its tax arrears.