HMRC winding-up petitions

HM Revenue and Customs is one of the most frequent petitioners in the winding-up courts. Its petitions follow the same rules as any other creditor’s: the same grounds, the same advertisement in The Gazette and the same hearing. What differs is how they read, and where HMRC now ranks when a company does go into an insolvency.

How an HMRC petition reads

In England and Wales the notice says the petition was presented by the Commissioners for HM Revenue and Customs, claiming to be creditors of the company, and names the petitioners’ solicitor as the General Counsel and Solicitor to HM Revenue and Customs. In Scotland the petition is presented by the Advocate General for Scotland for and on behalf of the Commissioners. Like any petition notice, it gives the date the petition was presented, the court, the case number and, in England and Wales, the hearing. It does not usually say how much is claimed or for which tax.

The grounds

HMRC petitions on the ground that the company is unable to pay its debts, as defined in section 123 of the Insolvency Act 1986. The company is treated as unable to pay if any of these is shown:

• a creditor owed more than £750 served a statutory demand in the prescribed form, and the company neglected to pay for three weeks;
• it is proved to the court that the company cannot pay its debts as they fall due;
• the value of its assets is less than its liabilities, counting contingent and prospective liabilities.

A statutory demand is one way of showing it, not a step every petition must follow. A business that cannot pay a tax bill in full can ask HMRC for a payment plan, which HMRC agrees where it judges the plan affordable.

Where HMRC ranks since December 2020

In an insolvency that began on or after 1 December 2020, some of what a company owes HMRC is a secondary preferential debt (section 386 of the Insolvency Act 1986, and paragraph 15D of its Schedule 6). It covers VAT, and the deductions a company makes from payments to others and holds for HMRC:

• income tax deducted from employees’ pay under PAYE;
• employees’ National Insurance contributions;
• student loan repayments deducted from pay;
• deductions from payments to subcontractors under the Construction Industry Scheme.

Those debts are paid after the ordinary preferential debts, such as what employees are owed, and before the holder of a floating charge and the unsecured creditors. Corporation tax and employer’s National Insurance remain unsecured, and penalties and interest are not part of the preferential claim. For a lender with a floating charge, or a supplier owed money, the size of a company’s VAT and PAYE arrears therefore matters more than it did before 2020.

What the record shows

The Gazette notice records that HMRC claimed a debt and asked the court to wind the company up. A later notice may record that the petition was dismissed, which states the court’s decision and not the reason for it. Where the company went into an insolvent liquidation, the statement of affairs lists what the directors said was owed to HMRC. Before any of that, the company’s balance sheet shows its tax and social security creditors year by year, and a sharp rise there can be the first sign on the public record that tax is not being paid as it falls due.

None of this says why. A company can fall behind with tax because a large customer failed, and a dismissed petition is consistent with a debt paid in full the week it was presented. The record shows what happened and when, and the questions follow from it.

In a report

A Check the Director report reads The Gazette’s petitions to wind up a company, and their dismissals, for every company the person has been an officer of, each with the date it was advertised and a link to the notice. Three of its published criteria concern HMRC directly: “Deficiency to creditors including HMRC or employees”, read from a liquidation statement of affairs; “Tax and social security creditors more than doubled”, read from the accounts; and “Named on HMRC’s list of deliberate tax defaulters”. See how to search for a winding-up petition for checking a company yourself.

This guide describes the public record in general terms, for England and Wales unless it says otherwise. It is not legal advice.