How to deal with an HMRC Winding Up Petition

What is an HMRC Winding Up Petition?

A Winding Up Petition is a legal document that a third party you owe money to (a creditor) can issue against your company for an unpaid debt of over £750. If you have outstanding VAT, PAYE, NICs or Corporation Tax debts that HMRC believes you cannot pay, it can submit a Winding Up Petition to the court.

The court will schedule a hearing to assess the situation and decide what happens next. If you cannot pay what you owe, the court can grant a Winding Up Order to force the company into Compulsory Liquidation. An official liquidator will then take control of the company and sell its assets to repay the creditors as far as possible before closing it down. 

What is the process leading up to an HMRC Winding Up Petition?

A Winding Up Petition is very unlikely to be the first contact you receive from HMRC about an unpaid tax bill. You will typically have multiple opportunities to resolve the issue before it gets that far. 

HMRC usually only issues a Winding Up Petition after it has taken multiple other steps to recover the debt. For example, you may have agreed a Time to Pay Arrangement with HMRC that failed, or HMRC may have taken enforcement action, such as seizing company assets, but without success.

Before issuing a Winding Up Petition, HMRC will usually send you a Statutory Demand, which is a formal payment request. If you still do not pay what you owe within 21 days, it shows the company is unable to meet its tax obligations. HMRC will then issue a petition. 

What is the timeline for the winding up process?

The exact process and timeline will depend on the specific circumstances of your company and the case, but the key milestones will look something like the following:

• You receive a Statutory Demand from HMRC for an outstanding tax debt. You have 18 days to apply to set it aside or 21 days to pay what you owe.
• If you do not pay or set aside the demand, HMRC will usually issue a Winding Up Petition. It must first file the petition with the High Court. It can serve it formally on you by delivering it to your company’s registered office.
• You then have seven days to respond to the Winding Up Petition, which you can do in various ways that we cover below.
• If you do not challenge the petition or pay it within seven days, HMRC will advertise it in the Gazette. This is a serious step as the petition will become public knowledge and your bank will usually freeze your accounts. That makes it almost impossible to trade.
• Around four weeks after receiving the petition, a court hearing will take place to give you and HMRC the opportunity to present your cases. The court will then decide whether to dismiss the petition or grant a Winding Up Order.
• If the court grants a Winding Up Order, it typically marks the beginning of the end for your business. You have just five working days to challenge the order, and you can only do so on specific legal grounds.
• If you do not successfully challenge the order, the court will appoint an official liquidator to oversee the liquidation process, sell company assets and distribute the proceeds to your creditors, including HMRC. Once the liquidation process is complete, the company will be dissolved and will cease to exist.

How can I respond to an HMRC Winding Up Petition?

You have seven days to respond to an HMRC Winding Up Petition after it has been served. Doing so within that timeframe can prevent the petition from being advertised in the Gazette and becoming public knowledge.

There are several ways you can respond when faced with a Winding Up Petition.  

Pay the debt in full

If you can pay the outstanding tax liability in full, along with the associated legal costs, the court will dismiss the petition. If you do this quickly, it may prevent the petition from being advertised; however, there are no guarantees. Paying the debt demonstrates the company’s solvency, which invalidates the grounds for liquidation.

Negotiate a payment plan

If you’re unable to pay the outstanding tax bill in full, it may still be possible to make a Time to Pay Arrangement with HMRC to pay what you owe in monthly instalments. HMRC may accept a payment plan if it believes the payments are affordable for you and will clear the debt in an acceptable timeframe. 

Dispute the debt

HMRC is not infallible and it can and does make mistakes about the sums businesses owe. If you believe HMRC has made an error, you can dispute the debt by informing the court and providing sufficient evidence. You can dispute the debt on the grounds that:

• The debt amount is wrong
• HMRC also owes you money
• The petition contains errors or HMRC served it incorrectly  

Request an adjournment

If you need more time to put a plan in place, you can request an adjournment by applying to the court with supporting evidence. That can be beneficial if you are actively negotiating a payment plan with HMRC or a Company Voluntary Arrangement with multiple creditors. 

Apply for a validation order

Applying for a validation order allows the company to continue trading, make essential payments and potentially dispose of assets under the court’s authorisation while it addresses the petition. The aim is that by continuing to trade, you can demonstrate the company’s viability and improve the position of the creditors. 

Make a Company Voluntary Arrangement (CVA)

If you also have other creditors you cannot pay but you believe your business is still viable, you may be able to make a Company Voluntary Arrangement. You’ll need to engage with a licensed Insolvency Practitioner, who will assess your situation and advise you on whether a CVA is suitable. 

If it is, they can present a proposal to your creditors, including HMRC. If 75% of your creditors agree to the proposal, you’ll enter a legally binding agreement to repay your creditors in monthly instalments over a typical period of three to five years.

Consider Administration or voluntary liquidation

If there are no grounds to dispute the debt and you cannot pay what you owe, you might consider putting the company into Administration. That could allow you to restructure and sell off the unprofitable parts of the business. 

On the other hand, if your company has no realistic prospect of making a recovery, entering into voluntary liquidation can be preferable to a Winding Up Order. That’s because it allows you to maintain a degree of control over the process and potentially mitigate the negative consequences.  

What are the implications of an HMRC Winding Petition for company directors?

If HMRC issues your company with a Winding Up Petition and the court orders Compulsory Liquidation, there can be serious consequences for you as a company director. 

The most obvious result is a loss of employment and any personal investment you made in the company, such as shares, loans or startup capital. The liquidator will also investigate your conduct in the running of the business. If they find that you breached your duties as a director in the period leading up to and during the company’s insolvency, you could be made personally liable for company debts or disqualified from acting as a director. 

You could also face adverse consequences if you gave personal guarantees for company borrowing. If the company cannot repay the borrowing in full, the lender can call in the guarantee, and your personal assets could be at risk. If your company fails with outstanding tax debts, HMRC may also ask you to pay a security deposit if you start a new company to protect against future liabilities.

Unsure how to deal with an HMRC Winding Up Petition?

If you’ve received an HMRC Winding Up Petition and are unsure how to respond, our Insolvency Practitioners are perfectly placed to help. We will assess your circumstances, advise you of your options and guide you on the best route forward. We also have extensive experience negotiating with HMRC. Please get in touch to arrange a free, same-day consultation or schedule a meeting at one of our offices throughout the UK.