Do not forget this alternative method for council tax collection

Mike Gilmour, Freeths, Nottingham

The financial problem

We face a future of ever more tightening budgets and increasing financial uncertainty: think Brexit, a potential early general election, regional assemblies, and so on. However, councils are still going to be required to provide a full service to their residents, albeit maybe without the usual bells and whistles. Council budgets are likely to be harder to stretch than ever in the next few years.

One area where most collecting authorities could improve income levels is in the collection of council tax. Across the country each year, about three to four per cent of due and payable council tax is not collected. This equates to approximately one per cent of collecting authorities’ expenditure and represents money which then has to be found from elsewhere.

According to government figures, published in 2015, over £2.7 billion of due council tax remains unpaid.

A lot of this money will never be recovered because it is owed by people who cannot pay rather than those who simply choose not to pay. However, there is a proportion of this money that could be recovered by taking appropriate action.

The personal insolvency solution

One possible route of recovery is through the threat of personal insolvency. There are many local authorities who have found this to be a very efficient way of recovering council tax that would otherwise not have been paid.

The process starts with a ‘letter before action’ being sent to the debtor at the relevant property and any alternative address that is known. If no adequate response is received, the letter is followed up by a statutory demand being served which formally demands payment of the sum outstanding. If payment – or at least acceptable proposals for payment – are not received in response to the statutory demand then a bankruptcy petition is issued and served.

To proceed down the personal insolvency route the outstanding debt needs to total £5,000 or more and be the subject of liability orders that you have already obtained.

Most debt issues are resolved at the letter before action or statutory demand stage. This results in a quick resolution for the collecting authority at no net cost to itself. For those cases not resolved at this stage, resolution tends to be reached shortly after the bankruptcy petition has been issued and before a bankruptcy order has been made.

For those cases that end up before the court the outcome in most instances is the making of a bankruptcy order because most debtors have no effective defence to the claim being made against them.

Serving documents on debtors can be problematic, but there are ways to ensure that service takes place and that attempts to avoid service by the debtor are not allowed to unnecessarily delay the progress of a case. There is also a system in place which provides for this work to be funded by the instructed lawyers, and which therefore again results in a zero net cost to the collecting authorities.

If a bankruptcy order is made, recovery may be slow. However, provided the correct homework has been done before the process is commenced recovery should happen over time.

The trick is to select those debtors where the personal insolvency process is likely to be effective and appropriate. This means selecting debtors who own their own properties, who have a proportionately large amount of equity in those properties, and where there are no obvious issues that are likely to cause difficulties. An investigation into a debtor’s personal circumstances can be carried out by your solicitor working in conjunction with an insolvency practitioner if necessary.

It will be for the collecting authority to ensure that recovery via this route does not take place against any particularly vulnerable individuals or, for example, those in receipt of social services assistance.

Historically there have been a few instances where the ombudsman’s office has determined that a personal insolvency process was not appropriate in respect of a particular individual. However, there are thousands of cases that go smoothly through the courts each year and which were initiated by collecting authorities using the personal insolvency route. The important thing to note is that each case should be considered on an individual basis.

Provided the proper checks and balances are dealt with, and proper individual consideration is given to each case, the personal insolvency process can provide an effective solution to council tax arrears in relevant cases.

Using your solicitor to pursue your debtors in this way can take a great deal of pressure off you; it can also free up your revenue collections team to concentrate on other areas.