One of the lesser reported elements of this year’s budget delivered by the Chancellor in March was the announcement that HMRC will increase its use of charging orders as part of its fight against tax avoidance.

This change in process could have very serious consequences if you are struggling to pay tax debt to HMRC.

It will increase the risk to your property as receiving a Charging Order would mean that your tax debt will then be secured against your home.

When could HMRC apply for a Charging Order against your home?

HMRC cannot simply decide one day to apply to the court for a Charging Order. They must first go through the process of applying for a County Court Judgement (CCJ) against you personally.

However if you are a home owner once a CCJ is issued then HMRC (in the same way as any other creditor) can then automatically apply for a Charging Order against your property.

BMD Tip: Even if there is no equity in your home it is likely that the judge will grant the Order anyway as it increases the protection for HMRC that the debt they are owed will eventually be paid.

What happens if you get a Charging Order?

Once a Charging Order is issued it means that the debt becomes secured against your home. However this does not mean that HMRC can force the sale of your property. In fact to do that would require the court to agree an Order for Sale which is very unlikely.

However the charging order gives HMRC additional protection in the sense that if you do not repay the debt in full then when you do come to sell your house then any outstanding balance will then be paid from the equity in the property.

If there is not sufficient equity in the property when you decide to sell it to pay the debt relating to the charging order in full then HMRC can block the sale unless you agree an acceptable repayment plan.

BMD Tip: HMRC debt is not covered by the consumer credit act. As such statutory interest on the outstanding balance will be added at 8% per year and so it is very much in your interest to continue to make payments towards the debt even if a Charge has been issued.

Are you at risk of getting a Charging Order? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Can Charging Orders be included in an IVA?

Once HMRC or any other creditor has successfully got a charging order against your property the debt owed becomes secured. As such it cannot be written off if you decide to start an Individual Voluntary Arrangement (IVA).

The only way a charging order can be overturned without a further battle in court (the outcome of which is by no means guaranteed) is if the debt is settled or paid in full.

Charging orders are therefore a very powerful debt collection tool and it is understandable that HMRC would consider using them. However in January 2013 NatWest and RBS were criticised by the OFT (Office of Fair Trading) for excessive use of charging orders. So surely by encouraging HMRC to use more of them, is this not a mixed message from the government?

I believe the answer to this is no. The government (in the form of the OFT) was right to tell commercial banks that over enthusiastic use of charging orders to enforce sometimes very small debts owed to them by individuals is a heavy handed debt collection technique.

However the non payment of tax is a different issue and the Government will feel justified that non payment of this type of debt should be enforced by every means possible.

How to avoid a Charging Order if you owe money to HMRC

In the light of this change in HMRC’s attitude to the use of charging orders, it is now even more important to get debt advice quickly if you owe money to HMRC that you are struggling to repay especially if you are a home owner.

If HMRC get a CCJ against you they will then automatically be able to apply for a charging order against your property which it is likely that the court will grant. This will then block the opportunity for you to deal with your HMRC debt with an IVA or bankruptcy which may otherwise have been ideal options for you.

For this reason if you are struggling with HMRC debt act now and speak to a debt expert. Implementing the right solution early could actually save you thousands in debt that you will otherwise have to pay in full.