HMRC Winding-Up Petition

HMRC Issued Winding-Up Petitions

HMRC is responsible for issuing about 60% of all winding-up petitions.

A winding-up petition (WUP) is a serious legal action, which if unchallenged will lead to the compulsory liquidation and shutting down of your business.

Up until 2003 HMRC we considered preferential creditors, meaning they had to be paid ahead of other creditors. Now, HMRC is just like any other creditor and like other creditors, a minimum of £750 needs to be owed to them before a winding-up petition can be issued.

In practice due to HMRC’s costs to petition for a winding-up order and the potential severity of the outcome, at least several thousand pounds is usually owed before such action is taken.

While HMRC must be commercially minded, they must also be fair. It is not in anyone’s best interests to shut down companies without considering compromises. However, this statutory requirement will side-lined if your company has a history of false and/or broken promises and a poor tax compliance history generally.

HMRC are an involuntary creditor. They do not need to issue a CCJ or Statutory Demand before issuing a WUP.

The ‘Involuntary’ creditor

HMRC an involuntary creditor; meaning, they do not have a choice of the client to do business with nor so they set credit limits as a company may do with a customer.

Therefore HMRC’s recovery approach can be less forgiving if there is delay and procrastination where payment is concerned.

HMRC do not need to issue a CCJ or Statutory Demand before issuing a WUP.

HMRC can issue a WUP when all other mediation has failed for non-payment of:-

• VAT
• PAYE tax liabilities
• Corporation Tax

In practice due to HMRC’s costs to petition for a winding-up order and the potential severity of the outcome, at least several thousand pounds is usually owed before such action is taken.

Don’t think of HMRC as an unauthorised overdraft facility
If you have cash flow problems then you must consider your liabilities to the taxman just like any other creditor.

Stopping an HMRC winding-up petition

Once you’ve received a winding-up petition, you need to act quickly to save your company. There is a seven-day time limit during which to take one of the following courses of action:-

• Contest the petition,
• Pay the outstanding debt in full,
• Opt to put the company into Administration while options are explored,
• Opt for a Company Voluntary Arrangement,
• Opt for a Creditors Voluntary Liquidation

See Winding-up Petition Overview for more information.