Court fee changes could affect SMEs
Members of the UK200Group of independent accountancy and law firms have commented on a warning from the Bar Council, which represents barristers, that big businesses will have the upper hand in court proceedings if further increases in court fees get the go ahead under plans announced by the Ministry of Justice.
The fee for starting a case is currently five per cent of its value and is capped at £10,000 for claims of £200,000 or above. However, the Ministry of Justice wants to double the maximum to £20,000, or eradicate the cap altogether.
The Bar Council fears that small businesses will be deterred from taking legal action to obtain money owed from late-paying customers. Where those customers are large companies, many will simply refuse to pay up, safe in the knowledge that their supplier doesn’t have the cash to pursue them.
Before March 2015, a small business had to pay no more than £1,350 to launch a legal claim for an unpaid invoice. That cap could soon be around 15 times higher; if it is not abolished completely.
Duncan Montgomery, tax partner at UK200Group member firm Whittingham Riddell LLP said: “Small claims court fees have a negative impact on debt collection, but for most businesses not supplying smaller end users, the impact is little. Most customers are looking for repeat supply, and court action is a relative rarity. Where a business is overexposed to small claims, diversification into clear waters away from competition, and a change to systems to restrict losses is key. In other words the business model itself needs consideration not just the method for receiving funds from recalcitrant payers.”
Jonathan Russell, partner at UK200Group member firm ReesRussell, said: “I know as a firm we have been more reluctant to pursue debtors through small claims because usually by the time a case gets to this point, the prospect of collection is low in any event so the increase in cost makes it an even less attractive way of chasing debts. I have certainly had conversations with clients who have decided not to follow up debts in this manner for the same reason. For other than tiny debts now it is more attractive to use a Statutory Demand and follow up with insolvency proceedings.”
The UK200Group will watch this issue with interest and its members will continue to advise clients on their best course of action as the matter progresses.