Despite the new bailiff regulations having been in force for over 18 months, it is very worrying to see that a number of the 'Beat the Bailiff' Facebook pages continue to advise the public that if an enforcement agent is enforcing a judgment that has been transferred to the High Court, that the agent cannot charge VAT on bailiff fees. Such information is inaccurate and highly misleading.

In April 2014 the Taking Control of Goods (Fees) Regulations 2014 were introduced and provide for statutory fees that can be charged by enforcement agents. In relation to county court judgments transferred to the High Court for enforcement, the statutory fee scale provides that the enforcement agent can charge the following fees:

The Taking Control of Goods (Fees) Regulations 2014 were laid before Parliament on 4th January 2014 and came into force on 6th April 2014. It was not until shortly after the regulation had been laid in Parliament that HMRC finally resolved the issue as to whether or not VAT should be added to bailiff fees.

On 26th March 2014 (two weeks before the regulations came into effect) the Ministry of Justice released their official guidance on VAT. This followed official HMRC approval and agreement. HMRC amended their internet guide a short while after.

The following is taken from the official guidance and concerns the charging on VAT on judgments transferred to the High Court for enforcement.

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

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.

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.

PS: For the avoidance of doubt, the previous guidance (with the very old terminology of certificated bailiffs, under sheriffs, distraint and distress warrants' ) became obsolete on 6th April 2014.

http://www.hmrc.gov.uk/manuals/vbnbmanual/vbnb41720.htm

So what happens with CRAR? Has VAT been charged previously for this type of work and the debtors made to pay it?

Quote

"Confusion and clarification

The law clearly states that CRAR excludes payments reserved as rent (such as service charges). Until recently however, landlords and Enforcement Agents were unsure as to how VAT applies to CRAR recovery fees.

HMRC has now confirmed that tenants cannot be charged VAT for the recovery of debt under CRAR rules. This means that Enforcement Agents giving VAT invoices to debtors are breaking the law."

Quote taken from here http://dukeslandlord.co.uk/2015/09/04/hmrc-clarifies-vat-charges-on-commercial-rent-recovery/

Is it possible that the two different facts cause confusion on recovery of a debt and VAT?

Then given this from Credit today http://www.credittoday.co.uk/article/17942/online-news/hmrc-clarifies-vat-charges-on-commercial-rent-recovery-

Both clips sy the same thing MM.Edit, and what has it got do with the subject of this thread ? ?

I think the guidance from HMRC is difficult to understand as it is written to comply with VAT law and does not fit with the practicalities of the enforcement law. Enforcement Agents don't care who pays the VAT so long as they don't. Not an unreasonable aspiration as they are supplying the taxable service and it is supposed to be the recipient who pays it.

What the enforcement industry needed was a table of fees and disbursements and for each one a note as to who pays the VAT. They did not get it. HMRC just issued their guidance that is so hard to fit to the real world that everyone just quotes it verbatim. The guidance was supplied with only days to run before the legislation came into force so their was not time to go back to ask for more or better guidance.

One thing of note is that it only says the irrecoverable VAT is recoverable from the debtor. Sounds a bit oxymoronic to me as if it is unrecoverable, how can it be recoverable?

I think I'm correct that all enforcement agents acting for councils to collect council tax, non domestic rates, rent and parking penalties charge all VAT to the council (the creditor) and charge nothing to the debtor. The council put it on their VAT returns and so their appears to be no net loss to them.

It looks to me that it would save a pointless paperwork exercise if VAT did not apply to fees and disbursements or were zero rated but I presume that cannot be done due to having to apply with VAT law which has to follow European directives.

Have to agree EM, the guide is fuzzy indeed as far as application to Enforcement services is concerned.

By unrecoverable they mean that the tax on the goods/services provided cannot be offset by the input tax paid, to suppliers etc as is usually the case in VAT payment.

In the normal scheme of things a VAT Invoice is supplied giving the total of VAT charged and this would be recovered/offset by the person/organisation so charged.

For enforcement purposes this sum cannot be reclaimed & for this reason there is no need for the Enforcement Agent/Co to supply a separate VAT Invoice. However they still need to keep a record of the sum collected so it can be entered on their next VAT Return.

Yes the sum generated by the sale or service would be taxable as an output tax, the input tax(tax paid on goods and expenses received) would be used to offset the output tax.

So why is it different for HCEOs and the rest of enforcement agents? There is no indication that they should act differently it all must stem from the interpretation of the guidance. The only difference would seem to be the nature of the creditor. Councils are happy to be invoiced for VAT but maybe the trade creditors are not. Whether that is a legitimate reason for passing the VAT onto the debtor who is not the recipient of the service is a discussion point for others I guess.

I looked up irrecoverable on the HMRC and got this. Can anyone say how this makes a difference for HCEO and other EAs ?

BIM31575 - Value Added Tax: irrecoverable sums

S36 Value Added Tax Act 1994

Most traders have to account for VAT at the time of supply and it cannot be waived on the grounds that the trader has not received payment from his customers. The exception being small traders (those with a VAT exclusive turnover not exceeding £1,350,000) who may opt to account for VAT on their sales on a cash received basis.

A trader is entitled to claim a refund of VAT where:

• he has accounted for and paid VAT on the supply,
  

and

• the whole or any part of the consideration for the supply has been written off in his accounts as a bad debt,
  

and

• a period of six months has elapsed since the date of the supply.
  

A deduction in the computation of trade profits in respect of such a bad or doubtful debt should therefore be restricted to take account of the fact that any VAT included is likely to be recoverable, unless the trader can demonstrate that this is not so.

Yes the above are reasons why the input tax invoices( the tax paid by the dealer/creditor) may not be available .

The problem in an enforcment situation is that the EA supplies the creditor, in usual situations the dealer will supply the person who is paying for the goods /service and will be due to pay VAT on an output vat invoice.. In this situation he is not serving the person who is paying for the service (fees). This is why a vat invoice cannot be issued.

If the EA is in employment of the court, he will not fall into the category which are eligible to pay VAT. However VAT on fines and enforcment by private bailiffs can be forwarded to the court as they are reclaimable by them due to a feature of the VAT act.

I posted this on another thread:

VAT should not have been charged as the creditor, a utility co, will be VAT registered. In such a case, the creditor will pay the VAT and later reclaim it. From what I can see, the fees should not have exceeded £362.50. CES have taken over £1000 for fees - this continues to show that some EA's are sadly still motivated by greed.

HMRC rules state:

Therefore, where:

 

• the judgment creditors are registered for VAT; and
  
• the debt relates to their taxable business activities
  

the VAT on the Under-Sheriffs and Sheriffs Officers enforcement services may be recovered by the judgment creditors.

https://www.gov.uk/hmrc-internal-manuals/vat-business-non-business/vbnb41720

 

It seems that some do not understand what this means, and have even said my quote is opposite to what HMRC say. To me, it's clear - if the creditor is VAT registered, the VAT is paid by the creditor, not the debtor, and then the creditor recovers it from HMRC.

What do others think?

The High Sheriff appoints an Under-Sheriff and others to collect the money owing to the creditor together with enforcement costs. The High Sheriff does not take an active part in the recovery process and receives no personal remuneration.

Whatg you should be looking at is this

If they are not an employee their services are taxable. The position of bailiffs is similar to this.

The other people involved in High Court debt recovery work, for example locksmiths, auctioneers or removal men 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 different people involved are set out in the relevant Sheriff’s Fees Order. The value for VAT purposes is the amount each person gets as their share of the statutory fee and any expenses charged. The full amount charged, including tax, is recoverable from the debtor.

Bailiffs working under the power of the HCEO are self-employed these must pay VAT on their income, their income is fees.

Bailiffs working under the power of the HCEO are self-employed these must pay VAT on their income, their income is fees.

 

I'm not entirely sure that's correct. Are you saying every bailiff under an HCEO is self-employed?

I'm not entirely sure that's correct. Are you saying every bailiff under an HCEO is self-employed?

Perhaps a better way to ask is are you saying that every such bailiff is not salaried?

"VAT should not have been charged as the creditor, a utility co, will be VAT registered. In such a case, the creditor will pay the VAT and later reclaim it. From what I can see, the fees should not have exceeded £362.50. CES have taken over £1000 for fees - this continues to show that some EA's are sadly still motivated by greed"

I beg to differ on the fees that were to be charged as you are under a misconception of what they should have been:

Execution Costs - £111-75

Interest @ 8%pa - call it a £5 as we don't know just to give us a figure

Compliance Fee - £75

1st Enforcement Fee - £190 + 7.5% uplift on debt over £1000=£97-50

2nd Enforcement Fee - £495

Total to date = 974.25

VAT IS allowed to be added despite what your interpretation is which adds another £171-50

Grand Total = £1145-75, a far cry from your supposed £362-50

In fairness to Whitey (and I agree with him), the point is that the £600 2nd enforcement fee should not have been added. This highlights the very point that Whitey is making, ie, some EA's are sadly motivated by greed.

 

 

Take that £600 off, as well as the £111 execution cost (which is clearly not a fee) and the grand total is not such a far cry from the supposed £362 after all. In fact, the only thing in dispute is the VAT.

Has,.t that thread been closed for now?

VAT IS allowed to be added despite what your interpretation is which adds another £171-50

Grand Total = £1145-75, a far cry from your supposed £362-50

 

It's not my interpretation, it's what HMRC say:

Therefore, where:

 

• the judgment creditors are registered for VAT; and
  
• the debt relates to their taxable business activities
  

the VAT on the Under-Sheriffs and Sheriffs Officers enforcement services may be recovered by the judgment creditors.

That means, in this case, the creditor pays the VAT and recovers it from HMRC. Can you say how do you see it?

Oh and the £362.50 I quoted, (why you aggressively term this as my 'supposed' I'm not sure), I was only referring to EA fees, nothing more.

"VAT should not have been charged as the creditor, a utility co, will be VAT registered. In such a case, the creditor will pay the VAT and later reclaim it. From what I can see, the fees should not have exceeded £362.50. CES have taken over £1000 for fees - this continues to show that some EA's are sadly still motivated by greed"

 

I beg to differ on the fees that were to be charged as you are under a misconception of what they should have been:

Execution Costs - £111-75

Interest @ 8%pa - call it a £5 as we don't know just to give us a figure

Compliance Fee - £75

1st Enforcement Fee - £190 + 7.5% uplift on debt over £1000=£97-50

2nd Enforcement Fee - £495

Total to date = 974.25

VAT IS allowed to be added despite what your interpretation is which adds another £171-50

Grand Total = £1145-75, a far cry from your supposed £362-50

 

Of course, the giodence says as much.

Of course, the giodence says as much.

Does it? Where?

Does it? Where?

If they are not an employee their services are taxable. The position of bailiffs is similar to this.

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

The total fees and allowable expenses payable in respect of services provided by the different people involved are set out in the relevant Sheriff’s Fees Order. The value for VAT purposes is the amount each person gets as their share of the statutory fee and any expenses charged. The full amount charged, including tax, is recoverable from the debtor. ?

YOU are confusing the fee paid to the HCEO by the creditor and that recovered from the debtor in fees, as well as all the other tings you are misunderstanding.(of which there are many)

Again you are saying that all HCEAs are not employed by the EA comapny. Of course they will be a contracted employee - you can find many vacancies on the jobsites. Non-employees would be locksmiths, removal men etc. VAT on their services cannot be recovered.

However, HMRC seem to make it clear that if the creditor is VAT registered then VAT on EA fees should not be paid by the debtor.

I'm not on about any fees the creditor pays to the HCEA

Give up

Give up

That's helpful. I'll ask again - are you saying that all HCEA's are not salaried? Also if HMRC state.....

• the judgment creditors are registered for VAT; and
  
• the debt relates to their taxable business activities
  

the VAT on the Under-Sheriffs and Sheriffs Officers enforcement services may be recovered by the judgment creditors.

.... you feel that means a utility company doesn't pay the VAT. In the case stated, the EA has collected the VAT from the debtor, and no doubt will also charge it to the creditor, as HMRC instruct. Where does that second VAT charge go?

Threads merged as we already have an existing discussion thread on this subject.

Regards

Andy