Customs creates 'frightening' powers to collect 3rd-party debt

Customs & Excise's 'frightening' new powers to collect debts from third parties were condemned by tax experts this week as a major threat to businesses.

Customs claims it is 'streamlining and simplifying' the tax system by extending ancient Scottish powers of arrestment across the UK. But the new attachment plans go far beyond the Scots' model and could tip many struggling companies into receivership.

Through attachment Customs will be able to approach directly a third-party debtor to collect money owed by a defaulting taxpayer.

But the tax profession demanded the plans be scrapped. Finance Bill committee member and Tory MP Tim Smith said he would be seeking safeguards from the Treasury in today's talks.

He said: 'If Customs really needs to go to people other than taxpayers, then safeguards must be built in.'

Deloitte & Touche's corporate recovery legal adviser, Professor Roger Gregory, added: 'Attachment is nothing like Scottish arrestment which requires court orders and hearings to get money. With attachment Customs will just issue the notice and get the money.'

Non-compliance with clause 54 will result in a #250 fine, followed by an extra #20 a day until payment is made.

Gregory warned: 'It will push ailing companies into receivership. Normally the debtor would reach an agreement with the creditor, but now Customs can jump in and claim its cash.'

Chairman of the National VAT Practitioners' Group, Michael Conlon, said senior profession representatives called for an urgent rethink at a recent meeting with Customs' VAT policy head, Martin Brown.

'It's like banging your head against a brick wall, but Customs assured us that if a company becomes insolvent it will suspend any activity,' he said.

'It's frightening, but I hope it will prove its commitment to the regulations.'

The Institute of Directors' taxation executive, Richard Baron, added: 'Tax is often not paid because a business is in genuine difficulties and cannot satisfy all of its creditors.'