I’ve Received a Winding Up Order from HMRC – What should I do?
In the past few years, HM Revenue and Customs has changed its tack when dealing with companies that are experiencing financial difficulties and are unable to pay their tax. Winding up a company is now seen as a last resort by HMRC. To increase the amount of tax collected, HMRC is giving companies that are genuinely trying to meet their tax obligations every possible chance to pay.
If you have a corporation tax, VAT or PAYE bill you can’t pay, it’s essential you get in touch with HMRC straight away. You might be able to make a Time To Pay Arrangement, which will give your business the chance to pay its tax bill in instalments by direct debit. If a Time to Pay Arrangement cannot be agreed, HMRC is also increasingly using its powers of distraint to seize goods to recover unpaid taxes rather than issuing a winding up petition.
What all this means is that being issued with a winding up petition by HMRC is not something you can take lightly. Failing to pay the tax you owe will result in the compulsory liquidation of your company. There can also be personal repercussions for the company director if they have failed to meet their regulatory duties and responsibilities while operating the company.
When will HMRC issue a winding up petition?
HMRC will not usually petition to wind up a company unless the debt is more than £750 (the statutory minimum) and the total HMRC arrears are £5,000 or more. The winding up order will follow a winding up petition that has been presented to the court. In some cases, the issuing of a winding up petition by HMRC is enough to persuade company directors to pay their tax liability if they are in a position to do so.
However, a winding up order is not used by HMRC as a method of debt recovery. The aim of the petition is to force your company into liquidation so any assets can be sold to repay the debt. HMRC will pursue this route if it believes it is the only way to recoup the money it is owed.
When does a winding up petition become a winding up order?
From the date the winding up petition is issued by HMRC, you have seven days to pay the amount in full or mount a defence. If you do not have the funds to pay the debt, a licensed insolvency practitioner may be able to save a viable company by obtaining an administration order, or by proposing a company voluntary arrangement (CVA). If you fail to respond to the petition or appeal within seven days, it is highly likely the court will approve a petition and the winding up order will be granted. Once the winding up order has been granted all matters are out of your hands.
The role of the official receiver
The official receiver (OR) is an insolvency practitioner who may be appointed by the court to shut down the company. Depending on the complexity of the case, the OR may decide to appoint a liquidator to act in their place. The official receiver or liquidator has a number of different responsibilities, two of which are particularly pertinent to you as the company director. They must:
- Investigate the company director’s actions over a period of 2-3 years before the insolvency to understand exactly why the company came to be insolvent and whether the director was responsible;
- Investigate any movement of cash or assets during the period of insolvency. This is to ascertain whether the director has shown any preference to associated third parties, himself/herself or family members over creditors like HMRC.
What are the potential repercussions?
Any company director who has failed to act in time; has not acted reasonably; failed to keep adequate books and records; or continued to take credit which they knew the business could not afford to repay it is at risk of serious personal repercussions.
The above actions are known as wrongful trading. If the official receiver or liquidator can prove you were involved in acts of wrongful trading then you could face personal action. In a process known as ‘lifting the veil of incorporation’, a director can be made personally liable for unpaid PAYE or VAT payments.
Additionally, company directors can face disqualification proceedings under the Company Directors Disqualification Act. This will mean they are unable to act as the director of any company for up to 15 years. They can also be fined, and may face the loss of personal assets which can push directors into personal bankruptcy.
How can we help?
If you have received a winding up petition from HMRC or any other creditor then you should seek professional advice immediately. Ignoring the problem will only result in the liquidation of your company and potential repercussions against you personally. For more information please refer to our HMRC tax problems page or get in touch for a free, no-obligation consultation.