The cost of recovering debts through High Court Enforcement can be substantial — although considerably less than writing off the debt. However, there’s general confusion about one element — VAT. Should it be paid by the creditor, the debtor or not at all?
Why Would You Use High Court Enforcement Officers?
If you’ve received a court judgement in your favour for a debt that you’re owed but the debtor doesn’t immediately pay, you can use either Bailiffs or Enforcement Officers. Strictly speaking, Bailiffs are appointed by the County Court and Enforcement Officers by the High Court, but all are popularly referred to as bailiffs.
If the debt is over £5,000, only the High Court Enforcement Officers can be used. They will then use the correct legal methods to seize assets from the debtor in order to raise funds for payment. Unlike County Court Bailiffs, HCEOs aren’t paid if they fail to collect the debt, resulting in a higher level of success.
How Are High Court Enforcement Officers Paid?
HCEOs normally receive their fees from the debtor at the time of collection. However, if it proves impossible to collect the debt, the creditor who’s applied for the order may be charged a compliance fee of £75 + VAT.
Apart from the case of the compliance fee, then, VAT would normally only apply to fees paid by the debtor. If the party paying VAT is a public limited company, this would be recoverable as a business expense.
The Confusion Over VAT
There has been a recent claim that HCEOs have been charging VAT incorrectly, and that “Government have [sic] confirmed that VAT should be paid by the creditor who in many cases will be a commercial entity and can reclaim this as a cost of doing business.”
As we’ve seen, this appears to be incorrect. The creditor should only be paying VAT if the compliance fee is charged in the event of the debt not being recovered.
The position on charging VAT at all is less clear. In 2000, the VAT Policy Directorate specified that it should be charged, but the legal position may have changed with new regulations in 2014. The High Court Enforcement Officers Association has been negotiating with HMRC to clarify the issue. Meanwhile, VAT is being charged to the debtor and, in the event of a compliance fee, to the creditor.
Feel free to give me a call if you need to discuss how this might affect you, if you’re seeking payment of debts through the courts.