British businesses are facing a significant surge in winding up petitions as HM Revenue & Customs (HMRC) intensifies its efforts to recover unpaid tax debts. According to data compiled by accountancy firm UHY Hacker Young, HMRC submitted 2,391 petitions to shut down businesses over unpaid tax debts in the year leading up to December 7, marking a threefold increase compared to the previous year.
Peter Kubik, a partner at UHY Hacker Young, highlighted that this steep rise in petitions reflects HMRC's more aggressive pursuit of unpaid tax debts. The tax authority was temporarily banned from filing winding up petitions until the end of March 2022 due to measures implemented to safeguard companies during the COVID-19 lockdowns. Winding up petitions are typically utilized by creditors seeking payment from businesses that have fallen behind on their obligations. This situation can be resolved by settling the debt, as failure to do so may result in businesses being liquidated and their remaining assets distributed.
Geoff Rowley, CEO of FRP Advisory, affirmed that HMRC has become more proactive in its approach, leading to a growing number of companies having to confront their financial challenges. This trend is also reflected in the monthly figures released by the UK government on December 15, which demonstrated a rise in compulsory liquidations initiated by creditors seeking to collect debts. The Insolvency Service had previously highlighted the increase in winding up petitions from HMRC in July, indicating a clear escalation.
Various factors have contributed to businesses' financial pressures, including high energy costs, persistent inflation, and a cost-of-living crisis that has squeezed consumer spending. As a result, some businesses have prioritized paying other creditors over HMRC. In its most recent performance update for the three months ending in September, HMRC disclosed that unpaid debts had surged to £37.7 billion ($48 billion), up from £31.2 billion recorded two years ago. This highlights the substantial amount of outstanding debt that needs to be collected.
Reports suggest that HMRC has adopted a more forceful stance in pursuing debt recovery, as observed in cases such as the fashion brand The Vampire's Wife, which received a winding up petition without any prior warning. Similarly, football clubs Reading and Southend United faced petitions from HMRC but were able to resolve the issue through settlement.
Kate Nicholls, CEO of UKHospitality, voiced concerns over HMRC's increasingly aggressive approach, emphasizing the importance of exercising common sense and pragmatism rather than triggering potential problems for smaller independent companies facing short-term financial constraints.
Responding to the matter, an HMRC spokesperson stated that winding up petitions are only filed as a last resort and that the number of petitions is returning to normal levels after the expiration of pandemic protection measures in March 2022. The spokesperson emphasized HMRC's supportive approach towards customers with tax debts and its commitment to exhaust all other options before resorting to petitions in order to safeguard taxpayers' money.