Write Off of Uncollectable Debts

Report of the Finance Portfolio Holder

Recommended:

That the debts detailed in the report, totalling £194,506, be written off in the Council’s accounts as uncollectable.

SUMMARY: To seek approval for the write off of business rates and sundry debts that have proved to be uncollectable, in accordance with the Council’s Financial Regulations

Introduction

The Council has processes in place to ensure that income due is identified, collected, receipted and banked promptly. However, there are occasions where money owed to the Council proves to be uncollectable.

The Council’s Financial Procedure Rules give the Head of Finance authority, in consultation with the appropriate Chief Officer, to approve the write-off of bad debts or other sums due to the Council up to a limit of £5,000.

Amounts in excess of £5,000 must be authorised by the Finance Portfolio Holder and amounts over £25,000 must be referred to Cabinet for approval.

This report seeks approval for the write off of certain business rates and sundry debts above the £25,000 threshold that have proved to be uncollectable and for which there is little or no prospect of future recovery.

Background

Debts related to three business rates accounts and one industrial rent are recommended to be written off as uncollectable.

It is inevitable that it will be necessary to write off certain amounts as uncollectable when businesses go into liquidation / individuals declare themselves bankrupt with arrears owed to the Council.

The Council has no power to pursue recovery of outstanding amounts owed when a company enters administration or goes into liquidation. However, the company may continue to occupy a premises and continue to be liable for business rates.

Up to the point that the companies entered liquidation / administration the Council had pursued its normal recovery procedures, including, for example, obtaining Liability Orders from the Magistrates’ Court.

The debts recommended to be written off are summarised in the following table.

Business	Debt	Reason for Write-Off	Amount £
HHGL Ltd	Business Rates	Company Voluntary Agreement (CVA)	42,060
An individual (deceased) (account 786035)	Business Rates	No prospect of recovery	74,432
Biomass Optimum Fuels Ltd	Business Rates	Company in Administration	35,998
Action Cases Ltd	Rent	Company in liquidation	42,016
Total	194,506

Options

The debts recommended to be written off relate to businesses that are in liquidation / administration or where the Council has no realistic prospect of being able to recover amounts outstanding.

Where appropriate, the Council has registered its position as a creditor of the companies in liquidation / administration, but there is no realistic prospect of any distribution to creditors.

There are no alternative options available to continue recovery action for these debts.

Risk Management

An evaluation of the risks indicates that the existing controls in place mean that no significant risks have been identified at this time.

Resource Implications

The net cost to the Council of not collecting the amounts due from the above debts is explained in the following paragraphs.

Business Rates debts

Each year, as part of the preparation of the Collection Fund (the statutory account through which Council Tax and Business Rates are administered) the Council makes an allowance for uncollectable debts. The allowance reflects that it is not possible to collect 100% of bills raised due, for example, to company failure.

The bad debt allowance calculation is based on a number of factors, including the age of the debt and the recovery stage to which the debt has been progressed. The bad debt allowance at 31 March 2019 included £78,572 in respect of these debts, of which the Council’s share was £31,428.

The impact of writing off business rates debts is shared between the Council, central government, Hampshire County Council and Hampshire Fire and Rescue. The impact on the Council’s budgets is shown in the table below.

£
Total value of business rates debts to be written off	152,490
Other bodies’ share of total debt (60%)	(91,494)
Council share of bad debt (40%)	60,996
Less: Amounts already provided in previous years’ accounts	(31,428)
Reduced levy on business rates growth in 2019/20	(14,784)
Net cost to the Council in 2019/20	14,784

The net cost of the business rates debts recommended for write-off can be contained within the bad debt allowance for the current year.

Property Rent Debt

The cost to the Council of writing off the debt owed for commercial property rent is the total amount of the debt, net of VAT.

In this case, the net cost to the Council is £35,013.

Equality Issues

This report does not identify any issues related to equality.

Conclusion and reasons for recommendation

The report identifies four debts for which there is no reasonable prospect of recovery. It is recommended that they are written-off in the Council’s accounts.

Background Papers (Local Government Act 1972 Section 100D) None
Confidentiality It is considered that this report does not contain exempt information within the meaning of Schedule 12A of the Local Government Act 1972, as amended, and can be made public.
No of Annexes:	0	File Ref:	N/A
(Portfolio: Finance) Councillor M Flood
Officer:	Carl Whatley	Ext:	8540
Report to:	Cabinet	Date:	11 March 2020