HMRC Comfort Charges

This one came up in conversation recently and it is worth highlighting some of the side effects of comfort charges.

The case in question surrounded a company director who owed money to HMRC. Their tax position and amount payable had been contested for a couple of years with a final figure being decided by HMRC and the client being asked to pay. The case involved raising funds against the director’s property to pay a proportion of the tax with the remainder being paid over time under an agreement reached with HMRC.

HMRC asked for a comfort charge over the director’s property to sit alongside the repayment schedule.

This is where the law of unintended consequences comes into play.

Comfort Charges

There is no legal definition of what a comfort charge is. In effect it is the same as any legal charge over property, the use of the word ‘comfort’ is due to there being no overall reason for the legal charge to be taken other than it gives one party some ‘comfort’, namely a barrel to hold you over if you default.

Comfort is definitely a one sided thing.

Unintended Consequences

This is where you need to be careful. Let’s say HMRC take a comfort charge over your property, you keep paying to the agreement and eventually your liability is cleared. All OK? No.

There are several unintended consequences which you need to be aware of, let me expand;

• Borrowing gets more difficult. The charges against your property are listed at the Land Registry, as such they are public knowledge. Any lender doing decent due diligence will see the HMRC charge, think that if you don’t pay HMRC then you are even less likely to pay them and either load their interest charge of decline your application
• Your house value falls. Yes, your house value falls. Let’s say that you are selling your house, this means you need to repay HMRC to release their comfort charge. Any buyer or estate agent who does their research will see the HMRC charge and use it to negotiate harder with you. If you are selling and have HMRC on your back then the buyer will offer you less. It can become harder to achieve asking price and your house value has fallen
• What happens if you default. Let’s say you need a holiday from repayments to HMRC or need to divert cash to your business, if everything has been given away on day one then you have little wiggle room or negotiation power. Keep something in reserve

The main issues are the first two and are issues that do come up.

If you are needing to raise finance to repay HMRC then get the finance in place first then use that lump sum to negotiate with HMRC. If you can pay a lump sum then HMRC may well negate their demands for a comfort charge.

Remember, comfort is only one way. There are consequences that HMRC don’t always appreciate so take note and stay comfortable (without the comfort charge).

By Dave Farmer