Government clarification shows that High Court enforcement agencies have been incorrectly charging VAT on top of their fees to debtors.

The error came about as a result of a misinterpretation of the 2014 Taking Control of Goods Regulations. The VAT should instead have been charged to creditors.

Debt charity StepChange is calling for the Ministry of Justice and HMRC to ensure not only that the guidance to firms about charging is completely clear, but also for VAT that has been paid by debtors to be refunded.

The charity provided evidence in 2017 that nearly one in five clients surveyed reported being charged VAT on top of bailiff fees.

Unequivocal government clarification of the correct approach – that the debtor is not required to pay the VAT – was given on 29 October in an answer given in the House of Lords.

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Efforts to obtain clarification on the correct approach were led by a firm active in the High Court enforcement sector whose estimates suggest that up to £36m may have been wrongly charged to debtors over the past six years.

Peter Tutton, head of policy at StepChange Debt Charity, said: “There are multiple problems affecting how the bailiff sector operates in practice. In this latest example, it’s shocking that people in debt who can least afford it have been wrongly charged the 20 per cent VAT on fees that should have been paid by the creditors instructing the High Court writ enforcement firms.

“The Ministry of Justice and HM Revenue and Customs must now require firms to automatically refund anyone affected. In the meantime, anyone who believes they have wrongly been charged should write to the High Court enforcement company that they paid, to reclaim the wrongly charged VAT.

“This is another example where the lack of effective oversight of the bailiff sector has caused consumers harm. We eagerly anticipate a plan from the Ministry of Justice to take forward the reform of bailiff regulation. We strongly urge the next government not to lose sight of this important element of necessary legislative reform. The bailiff sector as a whole needs tighter regulation, as ongoing errors and problems demonstrate.”