Taxman ‘is threatening future of viable firms’

Edinburgh‑based McGrigors said Her Majesty’s Revenue and Customers (HMRC) had “massively increased” their use of laws that allow them to take over assets of late‑paying businesses to increase their tax take.

The firm said the number of times HMRC had used its powers of distraint to seize such assets had leapt fourfold over the past two years – to 7,004 in the financial year to April 2011, up from 1,675 in the year to April 2009.

McGrigors said assets seized often included “the very assets that a business needs to trade through its difficulties”, effectively forcing them to cease trading.

The firm said the sequestrated assets were often sold off at “fire sale” prices that did not cover the full tax liability in question, and also reduced the chances of other creditors being paid.

Stuart McNeill, partner in the litigation and dispute resolution team at the firm, said HMRC was “under huge pressure” to collect unpaid tax and at the same time facing staffing cuts.

McNeill said: “It is almost inevitable that this is resulting in a more aggressive approach and short cuts, but as well as having drastic implications for late‑paying businesses and their other creditors, it may also be 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, HMRC risk sacrificing full payment in a few months time for far less cash upfront.”

The law firm said such an “over-zealous response” might also have wider negative implications for the UK economy as firms went into insolvency that otherwise might have survived.

“This is despite HMRC’s commitment to helping businesses weather the effects of the economic downturn by giving them scope to negotiate late payment of their taxes through the ‘Time to Pay’ scheme,” McGrigors added.