A winding up order or bankruptcy petition for non payment of taxes can be frightening. But there are always things which can be done - negotiated settlements, company restructuring, disputing the claim, seeking business funding or applying for a validation order as just some of the choices. Let our experts help.
HMRC has the power to present both winding up petitions against companies and bankruptcy petitions against individuals for unpaid tax.
Both are serious enforcement measures. Both can bring commercial or personal consequences. However, the legal framework and practical impact differ significantly depending on whether the debtor is a company or an individual.
Understanding that distinction is essential if you are facing enforcement action.
Our team have been advising companies and individuals for 25 years. we can help you too.
Why does HMRC present petitions?
For many businesses and individuals, tax compliance can become difficult during periods of financial pressure. Missed returns, unpaid VAT or PAYE, or failed Time to Pay arrangements can quickly escalate.
Where tax remains unpaid and earlier recovery efforts have not succeeded, HMRC may present a petition to the court. It is one of the most common petitioning creditors in England and Wales.
In some cases, the debt relied upon is based on statutory assessments raised where returns have not been filed. Even if you believe those figures are overstated, they are treated as legally due unless properly challenged through the correct process.
By the time a petition is presented, negotiations are often exhausted or the debtor has not provided sufficient evidence to dispute the liability.
What is the difference between a winding up petition and a bankruptcy petition?
The key difference is who is being pursued.
A winding up petition is presented against a limited company. If the court makes a winding up order, the company enters compulsory liquidation and the Official Receiver is appointed. The company’s assets and affairs are placed under formal insolvency control.
A bankruptcy petition is presented against an individual. If a bankruptcy order is made, the individual’s assets vest in a trustee in bankruptcy. This can include property interests and other personal assets. Bankruptcy also carries serious credit and professional consequences.
In corporate cases, directors are not automatically personally liable for company tax debts. However, personal exposure may arise in specific circumstances, particularly where misconduct or statutory personal liability provisions apply.
Are there early warning signs?
In some cases, a statutory demand is served before a petition is presented. However, HMRC does not always use HMRC statutory demands, particularly where the tax debt is already established.
For companies, one of the earliest dangers following presentation of a winding up petition is advertisement in the London Gazette. Once advertised, bank accounts are often frozen and commercial relationships may deteriorate rapidly.
If a winding up order or bankruptcy order is made, control of assets passes to the Official Receiver.
Can a winding up or bankruptcy petition be defended?
Yes, both winding up petitions and bankruptcy petitions can be defended, but early action is critical.
Where there is a genuine and substantial dispute as to the debt, the petition may be challenged. Where repayment is possible, structured proposals may be put forward. In company cases, it may also be necessary to apply for a validation order to allow trading to continue while the position is resolved.
Defending proceedings at petition stage is usually more costly and complex than engaging with HMRC before a petition is issued. However, even after presentation, options may remain depending on the circumstances.
What risks do directors or individuals face?
For individuals made bankrupt, assets vest in the trustee in bankruptcy. This may include an interest in a jointly owned property. Bankruptcy also restricts access to credit and may affect professional roles and directorships.
For companies that are wound up, the company ceases trading and ultimately dissolves. Directors are generally protected by limited liability, but that protection is not absolute. Where misconduct is identified, directors may face claims from a liquidator or disqualification proceedings.
The consequences of HMRC enforcement action can therefore extend beyond the immediate debt.
Taking early advice
HMRC petitions escalate quickly. Once proceedings are issued, timeframes are short and commercial or personal damage can increase rapidly.
Whether you are facing a winding up petition against your company or a bankruptcy petition personally, early and structured advice improves the chances of reaching a controlled and proportionate outcome under the law of England and Wales.
Call Andy Lynch today Andy is an expert on a wide range of HMRC claims and before joining FWJ, he spent 18 years at HM Customs & Excise in their National Investigation Service. His experience is unrivalled in all types of HMRC claims including HMRC investigation defence, VAT claims, R&D tax credit defence, Account Freezing Orders, Tax Disclosure, Code of Practice 8 & 9 claims, winding up petition defence and much more.
At Francis Wilks & Jones we are able to assist with defence of a bankruptcy or Winding-up petition and any claims or risks you may face thereafter, including director disqualification claims and claims arising out of insolvency or for breach of a director’s fiduciary duties.
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