Distraint climbs fourfold in two years as Revenue gets tough on late firms

The number of firms whose assets have been seized for late payment of tax has risen fourfold in the past two years. HMRC used its powers of "distraint" 7,004 times in the 12 months to April 2011, compared with just 1,675 in the 12 months to April 2009.

The figures were unearthed by the commercial law firm McGrigors. HMRC is one of the few UK bodies that can legally seize assets without a court order. In 2003, HMRC lost its "preferred creditor" status, which had ensured that the tax office would be paid in full ahead of other companies when firms went into administration or liquidation. McGrigors argues that this might have prompted HMRC to use its distraint powers more aggressively.

Stuart McNeill, a partner at McGrigors, said: "HMRC may be using its sheer size and muscle to jump to the front of the queue, damaging other creditors' chances." Mr McNeill argued that the increased use of distraint by HMRC is counter-productive. "By barging in and selling the assets of a late-paying company without making a proper commercial assessment of the firm's medium-term viability, it risks sacrificing full payment in a few months' time."

In November 2008, at the height of the recession, HMRC extended its "time-to-pay" scheme, to ease the pressure on cash-strapped businesses. But in August, HMRC ceased to publish figures indicating the level of demand for the scheme, which prompted some tax professionals to speculate that the scheme was being wound down. Figures released by HMRC in July showed that a total of 15,490 time-to-pay arrangements were agreed in the second quarter of 2011, compared with 30,160 in the second quarter of 2010, a year-on-year reduction of 49 per cent.

HMRC denied that it was exercising its distraint powers too aggressively. A spokesman said: "HMRC purely uses its powers to seize assets of businesses which owe us tax when all other avenues have been entirely exhausted. Only a very small number of businesses who have long-term outstanding tax debts are collected in this way."