VBNB41720 - Specific Issues: Services Provided with the Recovery of Debts in England and Wales

Specific issues: services provided with the recovery of debts in England and Wales from 6th April 2014

High Court Judgments and County Court Judgments transferred to the High Court for enforcement County Court judgments Non High Court judgments

High Court Judgments and County Court Judgments transferred to the High Court for enforcement.

(a) The offices involved

When a creditor:

 gets judgment in the High Court against a debtor; or  where County Court judgments are referred to the High Court for enforcement the enforcement process is directed to a High Court Enforcement Officer.

The High Court Enforcement Officer, although also an enforcement agent, may use other enforcement agents to assist him to collect the money owing to the creditor together with enforcement costs. High Court Enforcement Officers are authorised by the Lord Chancellor to execute High Court writs.

The High Court Enforcement Officer is seen as accepting their office in the course or furtherance of a trade, profession or vocation. Their services are taxable and liable to VAT.

The other people involved in High Court debt recovery work, for example locksmiths, auctioneers or storage are also regarded as making taxable supplies in the course of their businesses.

(b) Nature and value of supply

The total fees and allowable expenses payable in respect of services provided by the High Court Enforcement Officers and their enforcement agents are set out in the Taking Control of Goods (Fees) Regulations of the Tribunals, Courts and Enforcement Act 2007. Allowable expenses are costs the enforcement agent incurs for storing goods, hiring a locksmith and auctioneer costs. The value for VAT purposes is the amount each enforcement agent gets as their share of the statutory fee and any expenses charged. The full amount charged, including any irrecoverable VAT if applicable, is recoverable from the debtor.

The services of High Court Enforcement Officer and their enforcement agents in the enforcement of High Court judgment debts and County Court judgment debts referred to the High Court for enforcement are regarded as supplies to the judgment creditors. Services of other people in connection with the enforcement of the judgment debts are supplies to the High Court Enforcement Officers and their enforcement agents where appropriate.

Therefore, where:  the judgment creditors are registered for VAT; and  the debt relates to their taxable business activities the VAT on the High Court Enforcement Officers services may be recovered by the judgment creditors.

High Court Enforcement Officers are aware that, although judgment debtors pay the cost of enforcement fees, allowable expenses and irrecoverable VAT, the supplies are always to the creditors. VAT invoices for the services must be addressed and sent to the creditors. Any documents issued to debtors should make it clear that they are not VAT invoices.

County Court judgments

When a warrant is issued by a County Court for the recovery of a debt the recovery action is carried out by an enforcement agent who is a civil servant. VAT is not chargeable on the cost of their services because these enforcement agents are employees.

Where necessary the Court will appoint independent businesses such as storage, locksmiths or auctioneers to carry out specific duties. These businesses provide standard-rated services to the Court. The costs of enforcement, including irrecoverable VAT, are recoverable from the debtor.

Non High Court Judgments

Court warrants/fines

Magistrates Courts hear many cases of minor misdemeanors and often impose fines as a result. HM Courts and Tribunals Service contract out this work and it is carried out by enforcement agents who are not employees. They are separate persons for VAT purposes. Therefore services provided by these enforcement agents to enforce the Court fines are liable to VAT.

These services are supplied to HM Courts and Tribunals Service and the tax on them is recoverable under section 41(3) of the VAT Act 1994 by the Ministry of Justice, under whose control the Courts fall.

Local Authority debt

The recovery action in respect of road traffic, Council tax and business rates debts for local authorities can be carried out by employees of local authorities or contracted out to enforcement agents who are not employees. Where the recovery action is carried out by local authority employees VAT is not chargeable on the cost of their services.

Where recovery is carried out by enforcement agents who are not employees, their services are taxable and liable to VAT. The services of enforcement agents in these circumstances are supplied to the creditor. The creditor is the local authority which instructs them, and these services are supplied to the Local Authority. Guidance on recovery of VAT by local authorities is contained in the HMRC manual on VAT for Government and Public Bodies (VAT GPB) and VAT Notice 749.

The services of auctioneers, storage and locksmiths engaged by the enforcement agent are supplied to the enforcement agent. However, if a local authority employs its own bailiffs the services of auctioneers and tradesmen are supplied to the local authority.

Child Support

Child Support deal with recovery of maintenance from non- resident parents. They contract out the recovery of sums and it is carried out by enforcement agents who are not employees. They are separate persons for VAT purposes and their services provided are taxable and liable to VAT.

These services are supplied to Child Support and the tax on them is recoverable under section 41(3) VAT Act 1994 by the Department for Work and Pensions, under whose control Child Support fall.

Tax Debt

When enforcement action is taken by HMRC for the recovery of a debt the recovery action is carried out by an enforcement agent who is a civil servant. VAT is not chargeable on the cost of their services because these enforcement agents are employees.

Where necessary, HMRC will appoint independent businesses such as storage, locksmiths or auctioneers to carry out specific duties. These businesses provide standard-rated services to HMRC. The costs of enforcement including irrecoverable VAT are recoverable from the debtor.

Value of supply

The value of the enforcement agents’ services is the total amount of fees and expenses recovered under Taking Control of Goods (Fees) Regulations of the Tribunals, Courts and Enforcement Act 2007. The full amount charged, including any irrecoverable VAT if applicable, is recoverable from the debtor.

Invoicing, accounting and input tax

To support their entitlement to input tax deduction an enforcement agent has to have tax invoices from the auctioneer, storage firm or other tradesmen. The MoJ, HMRC and DWP need a tax invoice from the enforcement agent to support their claim under section 41(3) VAT Act 1994. A local authority and Transport for London need tax invoices from the enforcement agent to support its claim under section 33(1) of the VAT Act 1994.

An enforcement agent can issue an invoice for the statutory fees and expenses.

An enforcement agent may submit periodic invoices to a local authority or Transport for London for the total services supplied within the period. Where they do so, these invoices can show the individual charges as a single comprehensive total. However, the invoice must be cross-referenced to the documents relating to the individual fees included on the invoice. Copies of these subsidiary documents must be available for inspection at both the agents and the local authority’s premises.

Documents supplied to debtors by enforcement agents must be endorsed “this is not a tax invoice” so that they cannot be taken for tax invoices.

VAT incurred by enforcement agents and other registered persons on their own overhead expenses may be treated as input tax and deducted in accordance with the normal rules.