Are HMRC trying to find their bucket and spade?

HM Revenue & Customs, energy firms and builders’ merchants are increasingly petitioning courts to wind up companies as they chase money they are owed.  The number of petition applications has more than doubled to 3,488 this year compared with the same period last year, according to figures from Company Watch, which tracks the health of businesses.

HMRC has been the most active petitioner in the year to August, applying to close down 1,522 businesses for not paying tax owed, up from 351 in the same period last year.  Of course these figures are partly distorted by the pandemic and the resulting government forbearance.

British Gas Trading is ranked second most active this year, with 40 petitions with NPower Commercial Gas also looking good for a European spot next year as it is in the top six petitioners.  No doubt Chelsea will be looking to Npower for a signing in the January window.  The builders’ merchants Wolseley, HSS Hire, MKM Building Supplies and Edmundson Electrical, which owns the Plumbase chain, have all become increasingly active this year, Company Watch said.

In June, the Insolvency Service said there had been a 34 per cent increase in Compulsory Liquidations, partly due to more requests from HMRC to recover funds from companies unable to pay their tax bill.  In August there were 221 Compulsory Liquidations, 45 per cent higher than in the same month in 2022. Overall, company insolvencies rose 19 per cent year-on-year to 2,308 in August 2023.

As we know, although winding up petition applications can be used as a tool to put pressure on debtors to pay up, the majority result in company directors receiving a winding-up order. “More often than not it ends up with the petition being awarded and the company being wound up,” said Craig Evans, chief executive of Company Watch.  However, anyone who has ever been taught by Neil will know that a winding up petition should be like going to Great Yarmouth* - i.e. the option of last resort and a creditor would be far better off litigating and executing on the resulting judgement.

* Insert your own least favourite seaside town here.

Centrica, British Gas Trading’s parent company, has 500,000 business customers and it is understood that winding-up orders are used only as their final option and to collect about 1 per cent of their outstanding debts, because of the legal costs involved.  British Gas said: “Our debt policy is fair, with robust controls in place. We seek to engage early with business customers to discuss the support and options available and are able to offer extended payment plans where appropriate. “We do not treat winding-up petitions lightly and only consider them in very specific circumstances where there is clear liability, the company has a sizeable balance and appears to be soluble with a healthy asset position.”

HMRC are yet to return their pre-Covid levels of issuing petitions, when they would typically apply for 345 companies a month to be wound up.  A spokesperson said: “We take a supportive approach to dealing with customers who have tax debts and only file winding-up petitions once we’ve exhausted all other options, in order to protect taxpayers’ money.”

Given HMRC’s rise up the pecking order in recent years meaning they are more likely to see a return from the resulting Liquidation than other creditors, HMRC are happy to pack their bucket and spade and head off to the beach.