HYNDBURN BOROUGH COUNCIL COUNCIL TAX AND NATIONAL NON DOMESTIC RATES RECOVERY POLICY GUIDANCE

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1 HYNDBURN BOROUGH COUNCIL COUNCIL TAX AND NATIONAL NON DOMESTIC RATES RECOVERY POLICY GUIDANCE 1 Legal and Democratic Services November 2013

2 Recovery Policy Guidance Introduction This document should be read in conjunction with the Council s Recovery Policy. It provides information on the practical application of the policy aims and objectives. The Council is reliant upon maximising its income in order to provide a wide range of services to its citizens within the Borough. The Council s main source of income apart from government grants is through the collection of Council Tax. In addition the Council has a statutory requirement to administer the billing and collection of NNDR in its area as part of the national pooling arrangements. Over 50 million is levied/raised each year across these income sources. The Council is committed to maximise the collection of income for the benefit of all residents within the Borough. It will do this by applying the aims and objectives of the Recovery Policy, which are to: Contribute towards a reduction in unpaid outstanding Council Tax and NNDR and improve levels of income through effective and efficient recovery of Council Tax or NNDR Ensure robust collection of debt against those Taxpayers who can pay. Ensure we provide all reasonable assistance to those Taxpayers who have difficulty in paying so they can meet their liability. Ensure we make effective and appropriate use of all recovery measures available to the Council Treat all Taxpayers fairly and consistently regardless of age, gender, disability, race and sexual orientation always being aware of a Taxpayer s rights under Data Protection, Human Rights and Equalities legislation Provide or, direct Taxpayers towards appropriate advice and assistance to ensure they pay the appropriate amount of tax Ensure officers work with Taxpayers and their representatives to set realistic repayment arrangements that are regularly reviewed.. Collection and Recovery Process The Council will: 2

3 pursue debt vigorously; deploy a computer system that will facilitate the joined-up management of Council Tax and NNDR debts; provide a variety of payment methods and access to payment facilities, (however, its preferred method of payment is direct debit and this will be promoted above all others;) actively encourage early contact in the recovery process and determine the most appropriate intervention when payments are missed; provide and make widely available clear and concise information about the statutory sanctions which it must use in the recovery process, and its approach to, and provisions for, people with financial difficulties; make every effort to adhere to the time limits it sets in its recovery procedures; Demand Notice Council Tax and NNDR annual bills are issued in mid March in each year in readiness for the financial period 1 April to 31 March. When a Taxpayer advises that he is in occupation of a property a bill will be sent out giving the statutory number of instalments. Similarly where a Taxpayer advises that he has vacated a property the account will be closed and any overpayment refunded as appropriate. If there is any change in circumstances or an amendment to the amount due from a Taxpayer then an adjustment notice will be issued and the instalments due amended accordingly. Joint and Several Liability Joint and several liability means that all or both parties named on a bill are each responsible for the entire amount owing. In such circumstances the Council can recover the whole amount from any one of the parties named. Where there is joint and several liability and Council Tax or NNDR is not being paid then the Council may take action to recover the tax against any, or all, of those liable Instalments Where a bill is issued prior to 30 April in any financial year Council Tax is payable by 10 monthly instalments. If a bill is issued on or after 1 May but before 1 January in any financial year then the number of instalments will be one less than the whole number of months remaining in the relevant financial year after the issue of the bill. The Council may agree to the Taxpayer paying otherwise than by the 10 statutory instalments, eg monthly where the Taxpayer agrees to pay by direct debit, quarterly, half yearly and annually. 3

4 Methods of Payment Direct Debit this is the Council s preferred method of payment and the Council offers the following payment dates 1, 10, 20 and 28. Payment by direct debit can be set up by telephoning the Council s Customer Contact Centre on or by the online process available at Standing Order Debit or Credit Card by telephoning the Council s automated telephone service on Debit or Credit Card by telephoning the Council during normal office hours telephone service on Online at Cheque payments By use of the barcode printed on Council Tax and NNDR correspondence at any Post Office or retail outlet displaying the Pay Point logo. When any payment is received by the Council it will, unless otherwise specified by the Taxpayer, reduce the balance outstanding for the current year s outstanding Council Tax or NNDR. Once payment in full has been made for the current financial year any payments subsequently received will go towards reducing any outstanding arrears from previous financial years. If a Taxpayer advises the Council that a payment that has been made and used to reduced indebtedness for the current year was actually intended to reduce outstanding arrears for previous years then the payment will be moved to where it was intended to go by the Taxpayer, subject to the Council s discretion. However, if moving the payment would actually result in a summons that had been quite properly issued, being rendered unnecessary the payment will not usually be moved. There is one exception to this general principle, where a Taxpayer makes a payment which matches an instalment or other amount outstanding such payment will automatically be posted to the matched sum outstanding. Wherever possible these payments will be reallocated as indicted above if brought to the Council s attention. Policy Statement Contacting the Recovery Team The Taxpayer can contact the Council s Recovery Team: in person, 4

5 by telephone, , text, eform, referral from Contact Centre, or through an advice agency. The Taxpayer must provide details regarding their financial position when they first make contact. These details will include their employment status and banking arrangements. Any schedule of payments agreed by the Council will be determined by reference to the Taxpayer s income and expenditure. All on-going Council liabilities such as Council Tax will be treated as an expenditure item in the calculation of the Taxpayer s disposable income. Payment of on-going liabilities to the Council will form part of any agreement to repay debt due to the Council. Schedule The recovery timetable for the following financial year is prepared in about January each year. This timetable identifies the key dates for the issue of reminders, summonses and liability order hearings before the Magistrates. When preparing the timetable consideration is given to Any time constraints imposed for the issue of documentation relating to Council Tax/NNDR Any closures of the Council offices, including Bank Holidays The availability of the Court by liaison with Her Majesty s Courts and Tribunal Service Capacity including end of year requirements Reminders If payment is not made by the due date as outlined on the bill a first reminder is issued giving 7 days in which to pay. If such payment is received then the right to pay by instalments will continue. However, if payment is not made the right to pay by instalments will be lost. If, following the first reminder and the account being brought up to date, there is a second occasion when a payment is late a second reminder will be issued in the same manner as the first reminder. If payment is late for a third time then a final reminder will be sent, the right to pay by instalments is lost and the total sum outstanding will be due. 5

6 All reminders will clearly set out the amount due and the consequences of failure to comply with the reminder. In addition the Taxpayer will be able to contact the Council to discuss their account. Arrangements Taxpayers who are experiencing financial difficulties and struggling to pay their Council Tax and NNDR are expected to provide details of their income and expenditure to the Council in order to determine the most appropriate way and rate of recovering the outstanding indebtedness. This information will be assessed prior to making any arrangement with the Taxpayer When making arrangements with a Taxpayer the Council will have regard to the criteria in respect of Vulnerable Customers at paragraph 18 of the Bailiff Code of Conduct (the Bailiff Code of Conduct is attached as Appendix 1) The Council will make arrangements with the Taxpayer or his representative including but not limited to husband/wife, partner, debt advisor, executor or solicitor where there is a written or express authority for the representative to act on behalf of the Taxpayer named on the bill When reaching an agreement to pay the Council will always seek to clear Council Tax and NNDR within the financial year for which the liability relates. In circumstances where this does not prove to be possible the Council will, as a minimum seek to reach an agreement that allows the payment of the continuing liability plus a reasonably achievable amount to reduce any outstanding arrears. Arrangements will only be entered into where details of the Taxpayers income and expenditure have been provided and, if necessary, authenticated. An arrangement can be entered into at any time following the issue of the annual bill and such arrangements can be calendar monthly, fortnightly or weekly. In addition, a direct debit option is also available. When reaching arrangements with Taxpayers any previous payment history is taken into account. If an instalment arrangement is set up and subsequently a payment is missed then a reminder is issued to the Taxpayer, the arrangement will remain in force if the instalment arrangement is brought up to date. However where the arrangement is not brought up to date or two payments are missed then the arrangement is considered to have been cancelled and a default notice will be issued. The Council will only usually allow one arrangement to be established in any one financial year. This is to make sure that prolific bad payers do not continuously 6

7 request a new instalment arrangement in the hopes of preventing any recovery action. After a summons has been issued an instalment arrangement can be agreed that includes the court costs. In such circumstances a liability order will still be obtained in the Magistrates Court. However, provided the arrangement is adhered to no further recovery action will be taken. All payment arrangements are confirmed to the Taxpayer by arrangement notice. Late or Missed Payments All payment arrangements will be closely monitored, with further recovery action being taken in respect of late or missed payments. The responsibility for making sure that payment reaches the account by the due date lies with the Taxpayer. This means that: Taxpayers must ensure that they make payments in advance of or on the agreed date; and must ensure that repayment arrangements entered into allow adequate time after the receipt of income for the payment to be credited to the appropriate account. It is important to remind the Taxpayer to contact the Council if they anticipate problems in meeting any instalment due date. Direct Debit Where possible the Council will expect the Taxpayer to make payments to both their on-going liabilities and their arrears by direct debit. Paying by direct debit will ensure that the Taxpayer does not inadvertently fall behind with their payments and also keeps the costs of collection for the Council to a minimum. Documentary Evidence It will be the intention to deal with any query fully on the first contact and make an arrangement, which will provide realistic opportunity for the debt to be cleared. On occasions, however, it may be necessary to request documentary evidence to confirm particular details. If this is necessary, the Taxpayer will be informed of what items are required and how to provide these to the Council 7

8 The Taxpayer will also be advised that if the evidence is not produced within the timescale stated, the offer of payment may be rejected and action taken to recover the debt without further notice. Further Action It is important that all arrangements are monitored to ensure they are maintained. Where a Taxpayer has not kept the arrangement, a reminder letter will be issued before the arrangement is cancelled. This letter will give the Taxpayer: the opportunity to bring the arrangement up to date; the opportunity to contact the Council to advise them of a change in circumstances; a reminder of the importance of maintaining regular payments and the consequence of not doing so; notification that further action may take place if the Taxpayer subsequently fails to comply with the arrangement. Taxpayer Contacts the Council After Receiving a Reminder The Council will either: strive to get the original agreement brought up to date as quickly as possible; or, agree to recommence the arrangement without making up the missed payment where there has been an additional priority expenditure which has resulted in there being insufficient disposable income to meet the instalment due. Evidence of additional priority expenditure may be required; or, negotiate a new arrangement if the Taxpayer s circumstances have changed significantly. Maintaining Current Instalments Any arrangement in respect of arrears relating to a previous year will be in addition to, and conditional on, the current year s Council Tax and any other on-going liability to the Council being paid. Changes in Taxpayer s Circumstances 8

9 All payment arrangements are subject to regular review and the Taxpayer may be requested to make contact in order to update the Council regarding their financial circumstances. It is important that the Taxpayer responds to such a request, as failure to do so could result in termination of the payment arrangement with further action being taken to recover the debt. Taxpayers are responsible for notifying the Council of any change of address as soon as possible. Exceptional Circumstances Recovery Officers will work in partnership with Taxpayers and their agents to set realistic and sustainable repayment amounts. It is recognised however that there will be Taxpayers whose position is totally untenable with no prospect of the situation being resolved within a reasonable period of time. In such circumstances, it is highly unlikely that the Taxpayer will ever be in a position whereby the debts are at a manageable level and they can clearly see an end to the current situation. This is a no win situation for everyone involved, the Taxpayer never clears the debt, creditors may recover the current debt but before long new debt is accumulated, or the current debt is never cleared. Whilst it is recognised that responsibility for the problem lies with the Taxpayer careful consideration needs to be given as to what action can be taken to ensure there is a long term solution to the problem. There are a number of options that can be considered: Option 1: Consider what other credit arrangements are available which may assist the Taxpayer to manage their financial affairs (e.g. Credit Unions) Option 2: Stop all action to enforce collection of the debt whilst the Taxpayer makes a nominal contribution towards it over a fixed period of time whilst maintaining payments to their current liabilities. Option 3: Recommend the debt be written off, in whole or part, in accordance with the Council s Constitution. This option will only be considered where the Taxpayer has a proven record of paying their current and on-going liabilities. Option 4: Where requested by the Taxpayer, signpost professional advice on entry into the Debtor Protection Scheme if appropriate or other advice on voluntary bankruptcy or arrangement that may be available to the Taxpayer. In order to set some guidelines for when evidence of expenditure may be required it is useful to have some triggers. The ones below are used by Money Advice Trust for 2013/14 Trigger Figures 9

10 To make the process of assessing income and expenditure as efficient as possible certain items of discretionary expenditure can be agreed without the need for the Taxpayer to provide documentary evidence. If the level of expenditure falls within the trigger levels noted below the officer can accept it without question or explanation. Where the Taxpayer shows a higher level of expenditure the officer should request evidence of the expenditure. In some cases, it may simply be that the figures do not take into account specific circumstances such as, families with lots of children, retired people or people with disabilities. There are a number of areas of expenditure where trigger figures have not been set, (e.g. mortgage and rent payments). This is because areas of expenditure such as these are likely to vary widely and the Taxpayers are unlikely to have any control over the level of expenditure. These items are noted below as non-discretionary expenditure. The trigger figures are split over four household types. The household types are indicative only and will not cover all circumstances (e.g. families with lots of children, retired people or people with disabilities). Details of items of expenditure within each category are noted below. The trigger figures noted below are effective for 2013/14 and will be reviewed annually. Discretionary Expenditure (monthly levels) Expend. Category First Adult Additional Adults (per head) Children Under 14 (per head) Children (per head) Own Vehicle (per vehicle) Telephone Travel H/keeping Other Non-Discretionary Expenditure Rent/Mortgage Other Secured Loan Council Tax Other Housing Costs Court Fines 10

11 Maintenance/Child Support Pension Payments/AVC s Life Assurance HP/Conditional Sale TV Licence Expenditure Category Telephone Travel Housekeeping Other Home Public Transport Food/Milk Health Mobile Other (e.g. taxis) Cleaning/Toiletries Repairs / Household Maintenance Other Car Insurance Newspapers/ Hairdressing Magazines Vehicle Tax Cigarettes/Tobacco/ Sweets Cable/Satellite/ Internet Fuel (Petrol, Diesel, Oil etc) Alcohol TV/ Other Rental Appliances MOT/Car Maintenance Clothing/Footwear School Meals / Meals at Work Breakdown/ Recovery Laundry/Dry Cleaning Pocket Money / School Trips Parking Charges / Tolls Nappies/Baby Items Lottery/Pools etc. Other Car Costs Pet Food Hobbies/Leisure/ Sport Other Gifts Vet Bills/ Pet Insurance Other Summons If either no payment is received or a defaulted arrangement triggers a final notice, then a summons will be issued for the total amount of Council Tax/NNDR outstanding for any given financial year. Summonses must be issued at least 14 11

12 days prior to the liability order Court hearing date and in practice will usually be issued about 21 and 28 days before the Court date. Throughout this process the Taxpayer will again be encouraged to contact the Council to pay the amount outstanding in full or enter into a payment arrangement. However, even if an arrangement is made a liability order will still be obtained by the Council, but no further action will be taken by the Council provided that the arrangement is kept. Costs will be added to the account on the issue of a summons and obtaining a liability order. The costs will cover the additional work and resources required to ensure that all possible Council Tax and NNDR due is recovered and include the costs payable to Her Majesty s Courts and Tribunal Service to issue a summons Liability Order Hearing A summons once issued will be served on the Taxpayer and will give detail as to the Court date. The Taxpayer is not required to attend the Magistrates Court, but does have the right to do so should he wish Council Tax Recovery Officers will interview anyone who appears at the Magistrates Court before the hearing to discuss the Council s claim for outstanding Council Tax and NNDR and try and agree a payment arrangement. The Taxpayer may make representations to the Magistrates if they wish. The Magistrates have relatively limited power at this stage and the onus is on the Taxpayer to put forward a valid defence. Cases can be adjourned with the Council s agreement at this stage, which may be appropriate where it is considered that further discussion with the Taxpayer or investigation would assist. The Court will make a liability order if satisfied that the correct processes have been followed. Once obtained, a liability order enables the Council to recover the outstanding tax in different ways. Enforcement methods include attachment of earnings (Council Tax only), distress (Bailiff action), attachment of benefit (Council Tax), committal to prison, charging order (Council Tax) and bankruptcy/insolvency. Once a liability order has been obtained, the Council will pass all cases to one of the three bailiff companies currently instructed (Jacobs, Rundles and Rossendales Bailiffs). It is one of the three bailiff companies that sends out the 14 day letter following the Council obtaining a liability order for Council Tax and a 7 day letter following the Council obtaining a liability order for NNDR. The Taxpayer is legally obliged to return the form attached to the 14 day letter sent regarding the Council having obtained a liability order in respect of Council Tax. If the information requested on the 14 day letter is provided by the Taxpayer then the next stage in the recovery process will be dependent upon the income and status of 12

13 the Taxpayer. Any cases where there has been no response to the 14 day letter will be automatically progressed to the next stage and referred to a bailiff. Bailiff Action. The Council has a Bailiff Code of Conduct which outlines the procedures and behaviours required of the three Bailiff Companies currently instructed. A copy of the Council s Bailiff Code of Conduct is attached at Schedule 1. Any fees charged by the bailiffs are in accordance with the legislation and agreed with the Council. Where an account has been passed to the bailiff the Taxpayer is encouraged to contact them direct regarding payment of the outstanding arrears. The bailiff may make an acceptable arrangement with the Taxpayer to repay the sums due or levy distress on goods owned by the Taxpayer to satisfy the amount outstanding. Levying distress on goods is where the bailiff secures the debt against assets owned by the Taxpayer. Actual removal of goods and sale will only take place in exceptional circumstances. Every effort will be made to ensure that a suitable arrangement is made with a Taxpayer including obtaining financial information such as employment or benefit details which could result in an order being made for an attachment to earnings or deduction from benefit as appropriate. Attachment of Earnings Under Regulation 37 Council Tax (Administration and Enforcement) Regulations 1992 the Council may make an attachment of earnings to secure payment When the Council has information regarding a Taxpayer s employment details it will usually issue an order to the Taxpayer s employer to make deductions from the Taxpayer s earnings. An employer is legally required to comply with this order and may deduct a nominal charge which is currently 1 for each deduction made towards their costs of administering the order. When an attachment of earnings order is set up the employer will receive a copy of the order and a booklet outlining the guidelines to be followed by the employer. The Taxpayer/Employee will also receive a copy of the order. Where an attachment of earnings order is established it will remain in force until full payment of the arrears is made whether by deductions or payment direct to the Council. 13

14 An attachment of earnings order will not be cancelled unless: It has been issued in error by the Council An acceptable alternative payment option is agreed between the Council and Taxpayer The Council can set a maximum of 2 attachment of earnings orders at any one time. These will be monitored to ensure that payment is being made on a regular basis. The Council will Contact employers where deductions are not being made and passed to the Council Contact employers where the Taxpayer has paid the Council directly and an attachment of earnings order is in force Advise employers and Taxpayers of any changes in the legislation that will affect the administration of the order Deductions from State Benefits The Council Tax (Deductions from Income Support) Regulations 1993 allow the Council to apply to the Department for Work and Pensions (DWP) for deductions to be made from a person s income support or job seekers allowance provided that a liability order has been obtained from the Magistrates Court. The sum deducted is set in legislation and only one deduction may be made at any one time. The deductions will remain in force until full payment of the arrears has been made either through deductions or by direct payment by the Taxpayer. If deductions cannot be made (where for example there are already deductions being taken for another priority debt) the Council will contact the Taxpayer and make alternative arrangements to pay the outstanding Council Tax at a rate similar to the prescribed rate for deductions. Deductions from state benefits will be monitored for payment and the Council will Contact the DWP where deductions are not being received Contact the DWP where the Taxpayer has paid the Council direct Advise DWP and the Taxpayer of any changes in the legislation that will affect the administration of the scheme Committal to Prison 14

15 Proceedings can only be instigated for committal when the liability order has been to the bailiff and there has been a certificate of nil effects (Nulla Bona) returned or the bailiffs attempts to distrain have been frustrated by the Taxpayer, either by a lack of contact or by refusing the bailiff entry to premises. The Council will usually only contemplate bringing committal proceedings in cases where there has been a persistent refusal or avoidance of payment. However, each case will be considered on its own merits before reaching any conclusion. In the above circumstances, the Council will write to the Taxpayer to encourage payment of the arrears either under an arrangement, in full or if appropriate by way of deductions from earnings or benefit. The Taxpayer will be invited to attend an informal interview at the Council s offices at a pre-arranged time and date to provide detail of their financial and personal circumstances and hopefully agree payment. Where a payment arrangement is agreed and payment is made no further steps will be taken to initiate committal proceedings. Where there is no response from the Taxpayer and they fail to attend the pre arranged meeting or are unable to agree arrangements for repayment of the debt the Council will apply to the Magistrates Court for a summons to be issued requiring the Taxpayer to attend the Court for a means enquiry hearing to be held in the Taxpayer s presence. This will determine whether the failure to pay is due to wilful refusal (this is the deliberately avoiding making payment) or culpable neglect (this is where the failure to pay is due to carelessness). Wherever possible the summons will be personally served on the Taxpayer. If this is not possible, the summons will be hand delivered to the last known address of the Taxpayer in a sealed envelope addressed to the Taxpayer and a certificate of service will be completed in order to prove service of the summons at any subsequent hearing. Where the Taxpayer fails to attend the Magistrates Court in response to the summons the Council will make an application for a warrant of arrest not backed for bail. If the Taxpayer attends the Court hearing the Council s officers present at Court will discuss the issues with the Taxpayer and determine whether payment in full can be made or an alternative acceptable method of recovery is available. The Council officer will also conduct and record a full means inquiry into the Taxpayer s circumstances including the income and expenditure of the Taxpayer and their family as available. Where appropriate the Council officer will also discuss the case with the Taxpayer s legal representative. At the hearing the Magistrates may sentence the Taxpayer to a term of imprisonment not exceeding three months. This sentence can be suspended on whatever terms 15

16 the Magistrates consider appropriate - usually upon payment of the outstanding debt, either weekly or monthly. If the Magistrates do not consider that the failure to pay was as a result of wilful refusal or culpable neglect then they may remit some or all of the outstanding debt. This will in effect exhaust the recovery process for any sum remitted and no further recovery action will be possible at this point and any sum remitted will be written off. The Magistrates often impose a suspended sentence on the basis that the Taxpayer makes regular monthly or weekly payments. In such cases, actual imprisonment will not happen unless the Taxpayer defaults. The Council will respect the decision taken by the Court but will, where appropriate, challenge a decision using the formal appeals process. After the committal hearing at the Magistrates Court the Council will: Write to the Taxpayer informing them of the outcome Send out details of any adjournment to the Taxpayer and, if appropriate also contact the Taxpayer by phone. Monitor the progress of adjourned cases to ensure that the agreed course of action is taken Monitor payments on suspended orders and, where there is any default in payment, bring the matter back before the Court Accept full payment of any reduced amount of Council Tax and costs due under the order of commitment where the Taxpayer has been committed to prison and on serves part of the sentence passed Write off any Council Tax and costs due under the order of commitment where the Taxpayer is committed to prison by the Magistrates and serves the full term of the sentence passed, as no further recovery action would be possible. Charging Orders Charging orders are made by the County Court on the application of the Council and essentially are an order placed on the Taxpayer s property once liability orders have been obtained and the tax outstanding is for a minimum of 1,000. A charging order can only be obtained in respect of the property for which the outstanding Council Tax is due. Charging orders can be obtained if the amount outstanding is at least 1,000. However, usually where an application is to be made for a charging order the 16

17 outstanding tax will far exceed this sum and should include a minimum of 2 years Council Tax When determining whether it may be appropriate to consider making application for a charging order the Council s Recovery Officers will consider the following: The history of the matter and what actions to recover the outstanding tax have already been undertaken; Detail as to how the debt for Council Tax arose, whether the Council Tax is an ongoing debt or relates to a closed account and any other liabilities the Taxpayer has with the Council, such as NNDR or sundry debts; Liability orders must have been obtained; Attempts must have been made to make arrangements to pay the outstanding tax at all stages of recovery; Wherever possible the financial and personal circumstances of the Taxpayer should be available. This should include details of income and earnings; whether there is any outstanding claim for benefit or entitlement to benefit. If possible there should be an up to date review of the personal circumstances of the Taxpayer such as his family situation, age and any vulnerability of the Taxpayer or his family; In appropriate cases, consideration should have been given to attachments of benefits/attachment to earnings; The case has been passed to at least one of the bailiff companies the Council uses to attempt to levy goods to the value of the debt but the bailiff has made a return indicating that has been unable to execute the warrant or there are insufficient goods on which to levy; Consideration has been given as to whether this case is a suitable one for committal proceedings; Consideration should have been given as to whether obtaining a charging order would unduly affect another person, such as any joint owner, partner or dependent children; Land Registry search information must be obtained in respect of the relevant property Where there is an outstanding mortgage, consideration should be given as to whether it is likely that the property will be repossessed. 17

18 It is important to remember that if successful any charging order obtained by the Council will rank behind existing charges such as mortgages and a charging order is not a guarantee of payment of outstanding Council Tax. There are situations where there are insufficient funds following the proceeds of sale to pay any second charges. On such occasions the buyer takes the property free from the Council s charge and effectively the tax is irrecoverable at this stage. If a particular case is believed to be suitable for a charging order then the case will be passed to the Council s Legal Section for consideration. The Legal Section will write to the Taxpayer advising them of the situation and the Council s intention to apply to the County Court for a charging order. The letter will encourage the Taxpayer not to ignore the situation and specifically ask the Taxpayer to contact the Council with either payment in full or reasonable proposals for payment. Whilst it is not possible to obtain a charging order in respect of NNDR if a Taxpayer owns the business premises and is intending to sell the property he may be agreeable to giving the Council a charge over that property. This will essentially mean that the Taxpayer has agreed that the Council will be paid any outstanding NNDR from the proceeds of sale of that property. The Council will then not attempt to recover any amount that is due and covered by such agreement. However, the Council will need to be aware that, as with a charging order, if there is an outstanding charge the Council will only receive its money if the sale achieves sufficient funds to pay both charges. The agreement should only cover a maximum period of three years and any agreement should make provision for interest charges. Bankruptcy Council Tax and NNDR are deemed to be debts for the purpose of bankruptcy and winding up orders where liability orders have been obtained. The Council has a separate policy for Individual insolvency/bankruptcy and this is attached as Schedule 2. Winding up Petitions Using a winding-up petition as a means of collecting a debt from a Taxpayer is a powerful tool but carries with it many risks. The mere threat of a winding-up petition can be enough to elicit a response from a Taxpayer as the publicity involved in a winding-up petition can be devastating to a business. There are risks. An ill-advised winding-up petition can lead to injunctions against the issuer and a hefty order for costs. How a winding-up petition works 18

19 A winding-up petition applies to companies rather than individuals. First a statutory demand is issued to the Taxpayer. The Taxpayer then has three weeks to pay or respond. If they do not, a winding-up petition may be sought. If the court finds in the Council s favour then the Taxpayer will be compulsorily wound up. However, just because the Council issued the petition it does not mean that it has any priority over what funds may become available, and it is possible the Council might not even cover its costs. Key Risks Abuse of process Although a winding-up petition is a common tool in debt collection, the process was not designed for this purpose. It is possible that a court could find an abuse of the process of court and may dismiss a petition and make the Council liable for any of the Taxpayer s costs. The company may cease trading. If the Taxpayer is unwilling rather than unable to pay, the threat of a winding-up petition could be enough to persuade it to settle a debt first. However if the Taxpayer simply cannot pay its debts, the issuing of the winding-up petition will not improve this position. In fact, the threat could be enough to drive the company into an insolvency process. This will have the effect of crystallising the Council s losses and the return on an unsecured and non-preferential debt such as a local tax debt is likely to be minimal. Is the debt undisputed. A winding-up petition for money will only be issued if the debt is indisputably due. A winding-up petition issued for a disputed sum is an abuse of the process of court. A standard response to a threat of a winding-up petition is to say it is disputed in the hope that the creditor will change their mind rather than risk petitioning for a genuinely disputable debt. In terms of statutory debts such as local taxes this is unlikely to be a high risk. Cross-claims If there is a cross-claim of substance which exceeds the debt owed to the Council, the court will only allow the winding-up in very exceptional circumstances. Payment could be void If a company pays after the Council or, anyone else has presented a winding-up petition, that payment will become void if the company is later wound up because of 19

20 that petition. The usual process is for the petitioning creditor to apply to withdraw the petition on being paid. The court will allow this if no other creditors have indicated that they support the petition and remain unpaid. Individual Voluntary Arrangement (IVA) An IVA (Individual Voluntary Arrangement) is a debt solution to give people struggling with debts over 10,000 legal protection from their creditors by allowing them to repay what they can afford. The main benefit of the IVA is that it allows people to avoid bankruptcy by paying off a portion of the debts that they owe and writing off the debts they cannot afford. An IVA is a formal agreement and creditors, including Councils, are bound by its term and cannot communicate directly with the Taxpayer regarding debts. Eligibility for an IVA Debts over 10,000 2 or more creditors Can afford at least 100 after all essential living expenses, excluding any creditor payments Live in England, Wales or Northern Ireland (for residents of Scotland similar arrangements exist under the Debt Arrangement Scheme (DAS) provisions; these are binding with regard to debts incurred to English based organisations) Employed, self-employed, unemployed, house person or retired - simply have to be able to offer creditors an affordable monthly payment An IVA is a formal agreement made between a Taxpayer and their creditors about how the debts will be repaid. Due to its formal nature, an IVA has to be set up and administered by a licensed insolvency practitioner. It involves the Taxpayer making a repayment offer to all creditors. The repayment offer can be for part of the debt or for the full amount. If creditors holding at least 75% of the total debts agree to the offer, the arrangement is approved. The insolvency practitioner then manages the arrangement until the payments agreed have been made. If the Taxpayer fails to keep to the agreement made in the order any of his creditors can subsequently petition for bankruptcy. An IVA can provide for part payment only, they may result in write offs, which cannot be avoided. Corporate Voluntary Arrangement (CVA) A CVA is similar to an IVA, but for a company rather than an individual. Absconders 20

21 In situations where a Taxpayer leaves a property without notifying the Council of any forwarding address the Council will make every effort to trace their current whereabouts and continue with recovery action. This will, where permissible by law, include the sharing of information between Council departments and the use of external agencies. Write Offs/Debt Collection Agencies Statute Barred Regulation 34 of the Council Tax (Administration & Enforcement) Regulations (SI 613/1992) imposes the constraint that if the Council has failed to obtain a liability order by a date that is more than six years after the Council tax first became due than the debt cannot be pursued through the Magistrates Court. This does not mean that the Council cannot make a voluntary arrangement with the customer. The Limitations Act 1980 states:- Time limit for sums recoverable by statute (1) an action to recover any sum recoverable by virtue of any enactment shall not be brought after the expiration of six years from the date on which the cause of action accrued. This statute can be interpreted to mean if the Council has failed to take any recovery action for a period of 6 years or more since last contact with the customer then the debt becomes statute barred and again the Council is unable to pursue the debt through the courts. However, a voluntary arrangement can still be requested. The Recovery Team will take steps, where appropriate, to ensure that debts do not become statute barred. These cases seldom occur. The Council will attempt to recover such debts (if economic) by requesting payment. However, if the Taxpayer refuses, the Council has very little alternative but to write the debt off. Cases which are approaching the time limit for becoming statute barred and where there is already a liability order in place may be sent to a debt collection agency in a final to recover the balance due to the Council before being submitted for write-off. Any outstanding Council Tax or NNDR debt considered suitable for write off will need to be agreed and authorised by the Executive Director (Resources). A case would normally be worthy of consideration for write off in the following cases: The Taxpayer has become untraceable The debt is not cost effective to pursue 21

22 The Taxpayer has died and there are no funds available in his estate The Taxpayer no longer trades The Taxpayer is bankrupt, in liquidation or receivership A debt relief order is in force The recovery process has been exhausted and the Taxpayer has been committed to prison or had their debt remitted In circumstances where a debt has been submitted for write off the Council may still recover the outstanding Council Tax/NNDR should the situation change and the debt become recoverable. Monitoring Quality The Council will encourage and provide customers with the opportunity to make comments about how it approaches debt. Customer feedback will be important in shaping the ongoing development of the Council s recovery service 22

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