HMRC Winding Up Petitions: Options When the Tax Debt Is Disputed

HMRC presents more winding up petitions than any other creditor in England and Wales. Most follow the same pattern: unpaid VAT or PAYE, a period of correspondence, a warning letter, then a petition. What surprises directors is how often the figure in the petition is not a figure the company accepts.

That distinction matters, because the answer to an HMRC petition is different depending on whether the tax is owed and unpaid or genuinely in dispute.

Before the Petition: Time to Pay

Where the liability is accepted and the company simply cannot pay in one go, a Time to Pay arrangement is the normal route. HMRC will want to understand the cause of the shortfall, see realistic projections, and usually expects the arrears to be cleared over a defined period while current liabilities are met on time.

Proposals fail for predictable reasons. They are made too late, after enforcement has been passed on. They ask for longer than the business can evidence. They ignore the fact that a previous arrangement was broken. Or they present figures the directors cannot support with management accounts.

A Time to Pay arrangement agreed before a petition is presented is worth several times more than one negotiated after advertisement.

When the Tax Figure Is Disputed

The insolvency court is not a tax tribunal and it will not retry an assessment. But a petition debt that is genuinely disputed on substantial grounds should not found a winding up order, and this is where the position becomes technical.

Some tax debts become due and enforceable even while under challenge. Others do not. Where an assessment has been appealed and the tax is postponed, or where a payment on account of disputed tax has been agreed, the sum may not be properly due for petition purposes. Where the appeal has not been made, or the time for it has passed, HMRC is generally entitled to treat the assessed sum as owing.

Estimated assessments are a common flashpoint. If returns were not filed, HMRC may raise assessments to best judgment, which can be significantly higher than the true liability. The remedy is to file the outstanding returns and appeal, not to argue at the winding up hearing that the number feels wrong.

Where there is a genuine dispute, an application to restrain presentation or advertisement of the petition can be made, and an adjournment can be sought so the Tribunal appeal can be pursued. Our page on tax disputes barristers covers the appeal side of that work, and tax tribunal appeals explains the process in more detail.

The Advertisement Problem

As with any petition, the practical damage arrives with advertisement in The Gazette rather than with the hearing. Banks freeze accounts, suppliers withdraw credit and customers notice. Because dispositions after presentation are void unless validated under section 127, the company may need a validation order simply to keep trading while the dispute is resolved.

Directors who plan to fight the petition should assume they have days, not weeks, and should deal with the advertisement risk first.

Adjournments and Rescue Proposals

HMRC will sometimes support or not oppose an adjournment where there is credible evidence of a refinance, a property sale, an asset disposal or a company voluntary arrangement in preparation. Credible means documented. A letter from a lender, a signed heads of terms or a nominee's engagement carries weight; an assurance that funds are expected does not.

Where the underlying business is viable and the problem is historical arrears, administration or a CVA may produce a better outcome for creditors than liquidation, and the court can be asked to allow time for that route.

Personal Consequences for Directors

Unpaid VAT and PAYE draw particular attention after liquidation, because PAYE and National Insurance are deducted from employees' wages. Where HMRC considers there has been deliberate non payment, personal liability notices and, in some cases, joint and several liability notices can follow. Directors who continued to trade while Crown debts mounted also feature prominently in disqualification reports.

The related exposures after liquidation are covered in claims against directors after insolvency and director disqualification proceedings.

Practical Steps If a Petition Has Arrived

Check the date of service and the date fixed for the hearing. Establish whether advertisement has happened. Identify precisely which periods and taxes make up the petition debt and reconcile them against your own records, because part of the sum is often accepted and part disputed. File any outstanding returns immediately. If an appeal is available and in time, lodge it and seek postponement of the tax. Then decide between paying, settling, applying to restrain, or seeking an adjournment with evidence.

Do not simply attend the hearing and explain the history. The winding up court lists dozens of petitions in a morning and expects the position to be set out in evidence in advance.

Getting Counsel Involved Directly

You do not need a solicitor to instruct a barrister on an HMRC petition. Under public access, counsel can advise on whether the debt is disputable in the insolvency sense, prepare the evidence, deal with HMRC's solicitors and appear at the hearing. Panel members with a litigation extension can conduct the application themselves, including any injunction or validation order application.

Send the petition, the assessments and a short chronology through the insolvency disputes page. You can read about our counsel on the insolvency barristers page and about tax work on the tax disputes barrister page.

Related reading: how to stop a winding up petition and statutory demands.