HMRC winding up petitions hit four-year high
23 Dec 2019
The tax authorities are taking a tougher stance on companies that go bust owing large amounts of tax with over 4,000 HMRC winding up petitions filed last year
23 Dec 2019
The latest figures show that 4,308 companies were wound up last year following HMRC intervention, the highest figure since 2015, marking a four-year high. This was up 6% on the previous year to September, when 4,073 companies were forced to wind up.
Winding up petitions are used by HMRC to pursue outstanding tax payments including VAT, corporation tax and PAYE from businesses, which results in closure of the business and liquidating any assets held.
Any creditor of a business can apply to the courts for a winding up petition if a sum of just £750 has been left unpaid for longer than three weeks.
This is leading to more attempts by HMRC to recover the outstanding debt by winding up businesses as opposed to working with the business on ways to settle the amount.
In cases of insolvent liquidations, currently employees are the only preferential creditors, however, from April 2020 HMRC will become a secondary preferential creditor, which may increase the use of winding up petitions.
Lucienne Parry, partner at Moore, says: ‘It’s unfortunate timing that just as the economy struggles HMRC gets tougher in its debt collection processes and tries to close down more businesses.
‘It is important that businesses as well as individuals pay their tax bills. Everyone appreciates that it is one of HMRC’s jobs to collect any tax owed but shutting down your debtors and undertaking a fire sale of their assets is only a short-term fix. It is not normally the way to maximise your collections for the long term.
‘Once a winding up order has been made by the court, there is little that can be done by the business to prevent liquidation, unless you can pay the tax bill. Banks also tend to freeze the company’s bank account during this process, putting a stop to all trading.’
Moore said that HMRC should do more to work with businesses to agree payment plans that would give them more time to pay off their bills.