High Court Enforcement Agencies have been incorrectly charging VAT on top of their fees to debtors according to research by Just Digital Marketplace. Efforts to obtain clarification on the correct approach were led by the firm.
Just says that it sought advice from the VAT barrister, Melanie Hall QC, of Monkton Chambers and then consulted with the Queens’ Bench, the Ministry of Justice and HMRC over the course of 14 weeks. Responding to the consultation the government has now confirmed that creditors should pay VAT, who can then reclaim it as a cost of doing business in the normal way. The industry continues to await a response from the Ministry of Justice on this point
StepChange debt charity believes that the Ministry of Justice and HM Revenue and Customs now need to ensure not only that the guidance to firms about charging is completely clear, but also that any VAT on fees which has been wrongfully charged to and paid by debtors is refunded.
StepChange says that it provided evidence back in 2017 that nearly one in five clients surveyed reported being charged VAT on top of bailiff fees in the ‘Taking Control’ report. Unequivocal Government clarification of the correct approach – that the debtor is not required to pay the VAT – was given on 29th October in an answer in the House of Lords. StepChange says that action is now needed to resolve the problems caused.
Peter Tutton, head of policy at StepChange Debt Charity, said “There are multiple problems affecting how the bailiff sector operates in practice. In this latest example, it’s shocking that people in debt who can least afford it have been wrongly charged the 20% VAT on fees that should have been paid by the creditors instructing the High Court writ enforcement firms. The Ministry of Justice and HM Revenue and Customs must now require firms to automatically refund anyone affected. In the meantime, anyone who believes they have wrongly been charged should write to the High Court Enforcement company that they paid, to reclaim the wrongly charged VAT.”
“This is another example where the lack of effective oversight of the bailiff sector has caused consumers harm. We eagerly anticipate a plan from the Ministry of Justice to take forward the reform of bailiff regulation. We strongly urge the next Government not to lose sight of this important element of necessary legislative reform. The bailiff sector as a whole needs tighter regulation, as ongoing errors and problems demonstrate.”
In response to the research the High Court Enforcement Officers Association (HCEOA) has issued a statement: “A certain amount of confusion has arisen from the reply to a Written Question in the House of Lords by The Earl of Courtown on 29th October 2019 about the application of VAT on High Court Enforcement Fees.”
“The Association agrees with the Government’s stated position that VAT is charged to Claimants rather than Debtors as the service provided by High Court Enforcement Officers (HCEOs) when enforcing Writs of Control, which are based on Court Judgments, is to the Claimant and not to the Debtor.”
“However, in some circumstances, the Debtor currently pays the VAT on High Court Enforcement Fees because a Claimant is entitled to recover the enforcement fees on top of the judgment debt, costs and interest from the Debtor and accordingly the VAT payable on those fees. This was acknowledged on the Government website providing advice on what to do when a bailiff calls, under “What Bailiffs can charge”, although the reference to HCEOs charging VAT on enforcement fees has been removed in the last 2 days: https://www.gov.uk/your-rights-bailiffs“
“This is known as “irrecoverable VAT” as the Debtor cannot be issued with a VAT Invoice, as the service being provided is to the Claimant and the Claimant cannot be issued with a VAT Invoice as he has not paid the fees. The VAT in these circumstances is paid to HMRC by the HCEO business in the usual way. This approach was agreed by the Under Sheriffs Association with the VAT Policy Directorate in 2000.”
“Debtors are not, therefore, charged VAT on High Court Enforcement Fees, but in some circumstances do pay the VAT charged to the Claimant. HCEOs do not benefit from VAT being charged in any way and, like all registered businesses, undertake the collection of VAT on behalf of HMRC as an accepted burden of running a commercial business.”
“It is not true to say that HCEOs have been charging Debtors VAT on High Court Enforcement Fees incorrectly, as seems to be the interpretation of StepChange & Citizens Advice of the The Earl of Courtown’s Written Answer. The Ministry of Justice, which regulates HCEOs, is currently reviewing the position of irrecoverable VAT with HMRC and their own legal team and guidance on the approach to be taken in future is expected shortly.”
“The Association favours High Court Enforcement Fees being zero-rated, which was the initial position between 1974 & 1976 and would result in no Claimant’s VAT being payable by Debtors in the future.”