Fees paid by debtors to bailiffs are currently subject to various VAT rules. Since 1 September 1994, debtors were no required to pay VAT on bailiff fees as the bailiff provided the service (to enforce warrants) to the local authority. The principle establshed at this time was the 'direction of the supply of service' – from the bailiff to the creditor.
On 1 September 1998, the same principle was applied to enforcement of unpaid magistrates' courts fines and those debtors were also no longer required to pay VAT on bailiff fees.
In both these cases, the bailiff submits an invoice to the client (local authority or HMCS) for the VAT element of fees paid to the bailiff by debtors. The two bodies then recover the VAT paid to the bailiff in the usual way. A lot of work for no gain.
However, for enforcement of civil parking debt (parking penalties) and other forms of distress and execution, the debtor has to pay VAT on bailiff fees, despite the fact that the same principle of the direction of the supply of service must apply – debtors do not hire the services of bailiffs to enforce warrants against them!
The simple solution would be to make all forms of bailiff action (distress and execution) exempt from VAT. This would reduce the financial burden on debtors and remove the expensive money-go-round of creditors paying VAT to bailiffs, who pay it to HMRC, who give it back to the creditor!
Why is this idea important?
Exempting enforcement activity from VAT will:
reduce costs to debtors
reduce operating costs to HMRC
reduce operating costs to HMCS and Local Authorities
reduce operating costs to enforcement agencies
simplify enforcement procedures
provide a fair and even handed approach to enforcement fee application