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By Ben Hart,

HMRC winding up petitions hit four-year high

HMRC winding up petitions are at the highest level in four years, with HMRC being responsible for around three fifths of all petitions. Last year alone, it forced over 4000 businesses to shut up shop, signalling a more hard line position on behalf of the authorities against small businesses that have fallen behind on their taxes. This includes VAT, corporation tax and their employees’ PAYE and national insurance contributions.

What’s a winding up petition?

A winding up petition, which is the most severe action that can be taken against any business, save for criminal action, forces a company to immediately cease trading and enter liquidation, with a liquidator being assigned to flog off all the company’s assets, often for pennies on the pound, and distribute the proceeds among the creditors, or more likely, HMRC. It can be issued on behalf of a creditor in court for an outstanding debt of only £750, after just three weeks of non-payment.

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These winding up petitions are intended to be used only as a last resort, after all previous attempts to recoup the outstanding debt have been exhausted, but the most recent figures would seem to suggest that HMRC have perhaps been a little too trigger happy of late, hammering small to medium-sized enterprises with petitions at the first opportunity.

Worryingly, once a bank is aware of a winding up petition, they generally freeze the company in question’s bank accounts; effectively, and callously, putting the company out of business at the stroke of a pen or the push of an enter key. It’s important to note that when a creditor petitions a court to issue such an order, they are rarely refused.

2018/19: HMRC-triggered closures up 6% on previous year

4308 businesses closed in the year 2018/19 as a direct consequence of action by HMRC, up 6% from the previous year, when 4073 businesses had to shut up shop as a result of these heavy handed measures. For the traditionally pro-business Conservatives, with their current government ostensibly trying to show its commitment to helping small to medium-sized enterprises thrive, especially leading up to our exit from the EU, this is all rather disappointing.

It’s already incredibly difficult; both a huge personal risk and investment in one’s time and resources to start a business from the ground up, the least we could ask from the authorities is a little bit of leeway during those critical first couple of years while hopeful entrepreneurs are working 16 hour days trying to get their nascent businesses up and running, and to try and recoup debts in a reasonable and amicable fashion without resorting to such draconian means that a winding up petition represents.

This kind of short term thinking from the government and HMRC is myopic and frankly unwise. Small to medium-sized enterprises make up a large proportion of UK businesses; there were 5.8 million small to medium-sized enterprises at the beginning of 2019. SMEs account for 60 percent of all employment in the UK at 16.6 million jobs, and around half of UK private sector turnover at £2.2 trillion.

What a wind up!

If the government wishes to encourage people to take the huge effort and massive personal risk that is part and parcel of starting a new business, perhaps they could try being a little more compassionate and make more attempts to work with businesses to come to an arrangement in these situations, rather than working against them and taking the nuclear option right off the bat by applying to the courts for a winding up petition. This short sighted practice often not only results in a fraction of the true debt being recovered, but it prevents a company from going on to become profitable in the future, which would ultimately result in HMRC receiving greater tax revenue in the longer term.

Unfortunately things look set to get even worse, as while at the moment company employees are the exclusive “preferential creditor” in law, starting from the new financial year in April 2020, HMRC will become a “secondary preferential creditor.” This likely will result in even more winding up petitions being issued on behalf of HMRC, enough to wind anyone up.

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