§ Mr. MorganTo ask the Chancellor of the Exchequer if he will make it his policy to avoid placing small firms into bankruptcy for unpaid VAT or income tax, where the Government's legal and administrative costs of so doing are expected to be greater than the assessed likely recovery of moneys; and if he will make a statement.
§ Sir John Cope[holding answer 4 December 1992]: In all cases, civil recovery through the courts is only taken as a last resort. Where a VAT registered taxpayer has ceased trading and the tax debt is not expected to increase, Customs policy is that legal action should only be taken where there is a prospect of recovering sufficient tax to make this action cost effective.
However, for those VAT-registered taxpayers who continue in business but fail to meet their VAT liability and where all other options for payment have been explored without success, Customs has no recourse other than to take legal action in order to prevent the VAT debt from increasing.
Inland Revenue policy is to take bankruptcy proceedings only as a last resort when all other attempts to encourage payment of tax debts have failed. The Revenue does, however, have to consider its duty to the Exchequer, employees who have had tax deducted from their wages and to the general body of taxpayers who pay their tax on time.