There’s a new government in Westminster and a “black hole” in the public finances so, HMRC might be forgiven for feeling under pressure to increase its recovery of unpaid taxes. But what is unforgivable is the heavy-handed way it seems to be going about it, particularly when it comes to winding-up petitions.
However, a welcome decision from the Court of Appeal in HMRC and Payroll & Pensions Services (PPS Umbrella Company) Ltd. shows that HMRC isn’t getting it all its own way.
Background
HMRC vs Payroll & Pensions Services (PPS Umbrella Company) Ltd [2023] EWHC 3308 (Ch) (9 Nov 2023) is a difficult and complicated case in which HMRC argued PPS should be wound up because it owes millions in national insurance contributions due to a “labour supply fraud” (i.e. treating workers as self-employed rather than employed).
At the original hearing to decide whether a provisional liquidator should be appointed, the Court also considered whether HMRC should give a cross-undertaking to pay damages to the company, if it turned out the order should not have been made.
While this may have appeared to be an uncontroversial issue, HMRC argued that they should not be required to give the undertaking, because they are “the Inland Revenue”.
But the Court disagreed: “If they are so highly confident of their position as they contend, it may be thought HMRC will have little difficulty in giving that undertaking.”
The High Court decided that an undertaking should be given by HMRC, and that it should be unlimited.
Court of Appeal decision
When the case came before the Court of Appeal in August 2024, it was asked to decide on the key issue of whether HMRC needed to provide a cross-undertaking in damages when applying for the appointment of provisional liquidators without notice?
The Court of Appeal upheld the High Court’s original decision that it should give an undertaking to safeguard directors’ interests if they successfully challenge the winding-up position.
In its reasoning, the Court emphasised:“[T]he importance of the court’s duty to prevent individuals from being wronged by the state…”
What’s the significance of this?
The Courts have a duty to ensure a fair balance between the interests of the parties. Companies and individuals are entitled to protection against unfairness by the State – and this includes HMRC, which is not entitled to behave as if the rules do not apply to it!
Being presented with a winding-up petition by HMRC can feel like a David and Goliath situation for many businesses, especially when HMRC takes a “computer says no” approach to reasoned arguments for compromise. But businesses should not be intimidated; it is in their interests to insist on due process being followed, and the courts have shown they are receptive to taxpayers who argue their case.
We say…
In an ideal world, just like other creditors, HMRC would negotiate with businesses and be prepared to collaborate with insolvency practitioners to ensure survival and the re-payment of debts.
Unfortunately, as many accountants and lawyer will attest, HMRC demonstrates a rigidly inflexible approach, fixated on the technical definition of insolvency to justify provisional liquidation proceedings at the drop of a hat, seemingly with very little consideration of the bigger picture.
Liquidation is an extreme response which can involve dawn raids on business premises and directors’ homes and draconian restrictions. It is a power which should be wielded with care but, it seems that HMRC doesn’t see it that way – in our recent experience it is currently very actively and aggressively pursuing these types of actions.
How can we help?
We have lots of experience and plenty of success stories when it comes to helping our clients negotiate with HMRC. We can advise you on the best steps to protect your business if you are facing insolvency issues, investigations or liquidation or other proceedings by HMRC.
Contact us today for a no obligation chat: 07867 795 439 (Femi) or 07713 564 324 (Jikoa) or contact femi@femiogunshakin.com
Further reading
Umbrella fraud obscures employment status dispute | AccountingWEB
Photo by Jason Rosewell on Unsplash
