In September, Just released its Manifesto which identified the Five Giant Challenges that the High Court Enforcement industry is facing and what we intended to address. The biggest challenge of all was the inconsistency of how Value Added Tax (VAT) was charged. Since the launch of the Manifesto, Just has spoken to a number of providers of High Court Enforcement services and creditors and it’s clear that the problem is larger than we initially thought.
Why is VAT an issue?
Pre the Taking Control of Goods (Fees) Regulations 2014 VAT was charged to debtors. The 2014 Regulations then seemed to have removed that right and only allow for certain fixed fees to be applied at specific times. The Civil Enforcement industry (those working on behalf of council tax and parking creditors) changed their policy and started billing the creditor VAT who in turn recovered this from Her Majesty’s Revenues Service as a cost of doing business. The majority of the High Court Enforcement industry, however, continued to apply VAT on top of fees and collect the money from debtors. In some cases, however, the High Court Enforcement company charged the creditor and not the debtor. It’s unclear why an organisation would charge the debtor VAT in some cases and in others the creditor.
Adding 20% on top of the fees to debtors, for example, may tip them over the edge from a won’t payer to a can’t payer. This would then result in fewer cases being paid, and both the creditor and the debtor losing revenue that they would have otherwise received. Charging debtors VAT also means that those not VAT registered, namely people rather than businesses, pay an additional 20% in fees. It feels unjust that one debtor would pay, for example, £1000 in fees and another would pay £1200 for the exact same thing.
When charging creditors, the application of VAT has similar problems. Those VAT registered will get the VAT back on their tax return and those not registered will pay an additional 20%. Again, this feels unfair. The reality of this charging method, however, is that most High Court Writs are issued by a VAT registered creditor or an outsourced litigation partner. The ‘unjust’ impact is less.
The High Court Enforcement industry currently deals with approximately 100,000 cases a year and collects ~£100million for the creditor. It is estimated that the fees charged to collect this £100m are in the region of £30million and that means £6million of VAT is being applied per annum. As we have already learnt, in some cases this is applied and collected from the debtor, and in others from the creditor. This has been happening since April 2014 (almost six years) meaning an estimated £36million has been applied in an inconsistent manner.
What should I do if I am employing the services of a High Court Enforcement Officer, pay the VAT or not?
Just strongly believe that VAT is paid by the person receiving value from the service - the creditor. As the creditor is VAT registered, they can then reclaim the VAT charged as a cost of doing business. We suggest that the creditor pays the VAT. However, if you are unsure, we would advise that independent legal advice is taken.
VAT is a real industry challenge that is not going away. It seems so clear to some of us who should pay the VAT but to others, it's not. In some cases, the same High Court Enforcement company charges the creditor VAT for certain cases and the debtor for others. Their approach is simply to charge whoever will agree to pay.
Just is lobbying Government to address this issue and hope to bring clarity to the creditors that employ the services of a High Court Enforcement Officer soon. We must fix this issue and get consistency across the entire industry. It’s Just. to do it right.