On 13 January 2022, the House of Lords is due to debate a motion tabled by Baroness Meacher (Crossbench) to annul the Taking Control of Goods (Fees) (Amendment) Regulations 2021 (the instrument). Baroness Meacher’s motion states that the instrument should be annulled because it “fail[s] to deal with the injustice to debtors prior to the date on which the Regulations take effect”. If the motion is agreed, the instrument would cease to apply.

The instrument seeks to clarify when debt enforcement agents (EAs), formerly known as bailiffs, can recover the VAT costs of specified enforcement related services from debtors. The instrument would mean that, where a creditor is not VAT registered, an EA can recover goods worth the cost equivalent of the VAT on their fees from the judgment debtor. The Government’s explanatory notes explain the ability of EAs to collect this sum has previously been subject of some disagreement within the enforcement industry.

The Government laid the instrument under the made negative procedure on 18 November 2021. It officially came into force on 9 December 2021. Draft guidance on this topic was published by the Government in March 2020, with final guidance produced in October 2021. Debt charities have previously called for greater clarity and argued that enforcement agents were not acting in a consistent manner.

Policy background

In 2014, changes to the regulation of enforcement agents came into force. The Coalition Government had made a commitment in February 2012 to deliver protection against “rogue bailiffs” who used “aggressive” methods whilst ensuring debts could still be collected effectively.

The changes included:

  • The Taking Control of Goods Regulations 2013, which set out the procedure enforcement agents must follow when taking control of goods.
  • The Taking Control of Goods (Fees) Regulations 2014, which set out the fees and disbursements that are recoverable from the debtor in respect of the enforcement related services that were incurred when following the taking control of goods procedure.
  • The Certification of Enforcement Agent Regulations 2014, which set out the certification process for enforcement agents in the county court.

The Taking Control of Goods (Fees) (Amendment) Regulations 2021 would amend the Taking Control of Goods (Fees) Regulations 2014. Outlining the Government’s reasoning in a written statement, Lord Wolfson of Tredegar noted:

The Taking Control of Goods (Fees) Regulations 2014 (“the Fees Regulations”) set out the fees and disbursements that enforcement agents may recover from judgment debtors when enforcing debts. The Regulations were designed to provide fairness, clarity and transparency to allow judgment debtors to check that they had been charged the correct fees […]

Concern has been raised by some parliamentarians and interested parties about whether the law allows a sum equivalent to VAT costs to be recovered from judgment debtors in cases when it would represent a cost to the creditor and whether it is fair to do so.

Whilst we take the view that the Taking Control of Goods legislation when considered together with the common law position permits the recovery of VAT costs from debtors in this way, we have accepted, however, that this is an area where it would be beneficial to set out the position in regulations to put the matter beyond doubt.

This instrument, therefore, amends the fees regulations to clarify that a cost equivalent to the VAT incurred on enforcement agent fees and disbursements may be recovered from a judgment debtor if the judgment creditor is not VAT registered. We consider that this Instrument strikes the right balance between seeking to ensure that as far as practicable creditors are not left out of pocket as a result of enforcement and that debtors are not over-charged.

Why now?

In March 2017, a number of charities authored the report Taking Control: The Need for Fundamental Bailiff Reform, which claimed that:

Nearly one in five StepChange Debt Charity clients surveyed (19%) said they had been charged VAT on top of bailiff fees, even though VAT is only usually chargeable to the purchaser of a service, in this case the creditor, not the person in debt.

The report called for clarity on when VAT can be charged by bailiff firms, stating “VAT should not be added to the fees that people in debt have to pay”. Responding to a parliamentary question on the issue in October 2019, the Government noted:

Debt collection services carried out by high court enforcement officers are subject to VAT according to the normal rules and any VAT due is payable by the creditor who receives the service. The debtor is not required to pay the VAT.

In November 2019, the debt charity StepChange argued that up to £36 million may have been wrongly charged to debtors over the previous six years and called for action to refund any VAT on fees which has been wrongfully charged.

The organisation Just, a website offering judgment creditors access to high court enforcement companies throughout England and Wales, undertook campaigning to get clarification on the issue and outlined a number of complexities with the way in which VAT was charged. Explaining the current position, they note:

The [2014] regulations did not seem to allow companies to charge VAT to the debtor, but the industry at large does so in many cases. Just sought advice from the country’s leading VAT barrister, Melanie Hall QC, of Monkton Chambers and then consulted with the Queens’ Bench, the Ministry of Justice and HMRC over the course of 14 weeks.

The Government has now confirmed that creditors should pay VAT, who can then reclaim it as a cost of doing business in the normal way. The industry, however, continues to await a response from the Ministry of Justice on this point.

In March 2020, the Ministry of Justice consulted on draft guidance on the recovery of VAT on High Court enforcement fees. The draft guidance suggested that, whilst the judgment creditor is liable for any VAT due, a sum equivalent to the VAT costs may be collected from the judgment debtor where it is correctly a cost of enforcement because the creditor cannot recover it from HMRC.

However, several parliamentary questions in late 2020 drew attention to continued problems with consistency amongst high court enforcement agents when applying VAT on their fees in identical circumstances and questioned when further guidance would be available.

The Government highlighted that the changes that occurred with the introduction of the Taking Control of Goods (Fees) Regulations 2014 “were not intended to change the previously understood position at common law” about the recoverability of enforcement costs properly incurred “including VAT where the creditor cannot account for it with HMRC, for example because they are not VAT registered”.

However, it noted that it was “aware that there are differing interpretations within the enforcement industry of the application of the VAT payable on high court enforcement fees, which has led to different approaches being taken”. It stated that further guidance to clarify the issue would be produced and published “as soon as we are able to”.

On 13 October 2021, a final version of guidance to the High Court Enforcement Officers Association was published. The guidance restricts the recovery of a sum equivalent to VAT from the debtor to cases where a creditor is not VAT registered.

The High Court Enforcement Officers Association reacted positively to the publication of the final guidance calling it “very welcome news for our members […] it is the culmination of discussions that have been going on for many years”.

What other parliamentary scrutiny has there been

The House of Lords Secondary Legislation Scrutiny Committee considered the instrument on 30 November 2021 and raised no concerns.

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