'Seize-and-sell' not right answer to VAT debt: Syscap
More options should be made available to enable companies to manage VAT
Syscap chief executive Philip White has criticised HMRC's practice of seizing and selling business assets to pay overdue VAT bills, suggesting that businesses should be given more time to pay rather than potentially driven to the wall.
White said that although HMRC often moves to sell the assets quickly, their actual value tends to dwarf the amount recouped in such sales.
"When assets are seized and sold at fire-sale prices, the actual cost to the business far outstrips the original VAT bill. HMRC is only concerned with recovering the tax it is owed, not achieving the best price," he said.
"This could be a real body blow to SMEs, but what's even worse is that if business-critical assets are targeted, such as vital machinery or IT equipment, businesses may not be able to keep going at all."
If the sale of seized assets does not raise enough to cover the tax bill, HMRC may sue for the rest in court.
HMRC has powers of "distraint", which mean it can remove goods or assets - such as vehicles, machinery or IT equipment - from business premises to auction off with a view to settling a business's unpaid tax bills. In 2013, it raised £95.2m by seizing and selling the assets of 3,657 UK businesses. In 2008-9, just 263 businesses had their assets stripped as a result of overdue VAT bills.
"The fact that there has been such a significant increase in the use of HMRC's powers to seize and sell assets to recover VAT during the recession will be a huge concern to SMEs that have been struggling to cope during the downturn," White (pictured, right) said.
He added that HMRC's increasing use of distraint is counter to the time-to-pay scheme which was meant to allow businesses to extend the terms of VAT payment.
"Businesses whose cashflow has been stuttering throughout the past five years of economic turmoil are finding that, as their financial struggles have increased, HMRC has become less and less lenient over late VAT payments," he said.
"HMRC has adopted a far harder-line approach under increasing pressure from the Treasury to ensure it takes as much tax as it can to help fill in the hole in the public finances."
At the same time, the bank loans and overdraft facilities which were so readily available before the financial crisis had for many disappeared overnight, he added.
"We are seeing more and more businesses looking for alternative ways to bridge critical funding gaps before they appear. They know when the deadlines are and they want to plan for them; they just need the right funding in place to smooth out the peaks and troughs in cashflow," Syscap's White said.