How Inland Revenue Use Winding Up Petitions to Collect Tax

I have said before that an increasing number of organisations are using winding up petitions to recover debts, but did you know HM Revenue and Customs (HMRC) is the biggest culprit?

According to figures released by the National Audit Office Report earlier this year, the amount of corporation tax, unpaid income and VAT owed to HMRC rose considerably from £2.7bn in 2007-2008 to £28bn in 2008-2009.

While the Inland Revenue may remain patient for up to two or three months, when they do move to collect outstanding monies it’s usually quickly and these days, rarely through the county courts.

Instead they prefer to issue a winding up petition.

Although 80 per cent of petitioners use winding up petitions as a means of debt recovery, it is an abuse of process.

Theoretically, a winding up petition should be used by a creditor as a declaration that a debtor is insolvent, not to recover debts.

To use the petition in this way is an abuse of court and the legal process because when a company is wound up it’s done on the basis that it’s unable to pay its debt in accordance with section 123 of the Insolvency Act and should therefore be wound up.

Clearly, that’s not the purpose of the action in the HMRC’s case because the respondent company can easily demonstrate its solvency by paying the debt.

The economy depends on the prompt payment of taxes and the debts a company owes HMRC are unavoidable.

It may be questionable for an organisation to use a winding up petition to recover debts and few judges like it, but like any other creditors, HMRC is entitled to collect any outstanding revenues using the most appropriate methods available.

Contact us now for free and confidential advice about recovering debts, issuing winding up petitions and insolvency on 020 7504 1300.