Tax and Debt: What is Distraint ?
Distraint is the legal process which allows the Inland Revenue to take your possessions for sale at auction towards settlement of an unpaid tax bill. They have the legal power to do this without a court order.
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There will be a just five days between the time that the collector visits, and your goods being removed for sale.
Distraint involves costs which the taxpayer has to pay. They become part of the debt and are paid first from the proceeds of any sale, before the original debt itself.
In Scotland, this is called a Summary Warrant, - the process is largely the same.
The possibility of distraint should not be ignored, however the following point should be considered
- The collector should act within the law, and you need not fear the illegal behaviour that is sometimes reported of bailiffs who carry out distant for other debts.
- The collector cannot force his way into your premises without a court order, and such orders are very unusual.
- In reality, only a fraction of 1 percent of distraint visits lead to sales at auction.
A visit from the collector.
The collector may visit at any time between sunrise and sunset, on any day except a Sunday or a bank or public holiday.
He will normally have warned you that he is considering making a distraint visit, but he does not need to make an appointment and he will usually just turn up at a time that suits him.
The collector may be accompanied by a private bailiff. The bailiff has no legal powers against you, and is there to advise the collector on the value of your goods.
Entry to your premises
The collector will need to enter your home or business before the process of distraint can begin. By law, this must be peaceful entry. The collector may not make a forced entry without a court order, and these are very unusual. Denying the collector access does not of course end the matter; it is a wake up call however and will give you a bit of time to sort out your affairs. Outstanding tax returns should be dealt with urgently.
Once the collector has entered your premises, he should tell you what tax is owed and give you a chance to pay it. If you do not pay, the process of seizure may begin.
Seizure
This describes the process where the collector looks around your property and prepares a list of goods which might be taken for sale at auction known as a distraint notice and inventory.
He will not normally remove the goods at this time, but will ask you to sign an agreement – known as a walking possession agreement – under which you are given at least five days to settle the tax, or make an acceptable offer to pay. If you do not, the collector may return after that period and remove the goods listed on the distraint notice and inventory for sale at auction. Under the walking possession agreement, you must not sell or remove any of the goods that have been listed.
Goods which should not be seized
There are certain kinds of goods which are exempt from distraint. They will not seize property which you can prove belongs to someone else or which is jointly owned. We will not seize perishable food, beds and bedding, clothes, sufficient furniture for you to sit at a table and basic cooking equipment. Nor will we seize livestock or the necessary tools of your trade.”
The Revenue’s internal guidelines list several other items which should not be seized, including:
- goods under a hire purchase agreement
- goods hired to, or by, you
- goods subject to a retention of title clause
- loose money (coins or notes) but not a coin collection
- fixtures and fittings which, if removed, would cause damage to the fabric of the building
If a collector visits your home, he will usually be looking for items of particular value, such as works of art, antique furniture or motor vehicles. If you have no goods like this, or other items of value, you may be perfectly happy to allow the collector into your home to see for himself that there is nothing worth seizing.
If a collector visits your business, he may not put you out of work by seizing the necessary tools of your trade, as these are exempt. However, he is allowed to seize any trading stock, which can be very damaging.
If the collector seizes an asset which is exempt, he is breaking the promise to act fairly, which is given in the Revenue’s Service Commitment, and you should make a complaint right away.
Mark your letter of complaint ‘urgent’, and send a copy to the collector, asking him to agree not to take further action until your complaint has been dealt with. In this situation, a complaint should be handled very quickly.
Vehicles
In practice, the assets which are most commonly seized are motor vehicles (cars, vans and lorries), as these can most easily raise a sizeable amount at auction. If you have a vehicle, consider whether it should be exempt from seizure because it is a ‘necessary tool of your trade’. If so, you should tell the collector this. however, we must warn that the Revenue does not often accept that a vehicle is exempt just because it is used in your business.
It must be ‘necessary’ in the sense that you could not trade without it. For example, the collector may not accept that a car used by a taxi or minicab driver is a necessary tool of your trade.
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This material is for general information and only constitutes advice in the broadest of terms. You should not rely on this information to make any decisions. Call our advisors on 0800 043 2444 for professional advice for your own particular situation.