I have received a 7 day warning letter from HMRC threatening a winding up petition. What now?
HMRC 7 Day Warning Letter of a Winding Up Petition
You will receive an HMRC seven day warning letter if you are late with your tax payments and VAT and PAYE remains unpaid. It is designed to lead you to a negotiation for payment of the debt. The letter itself states that if the payment isn't made within 7 days from the date of the letter, the Solicitor of HM Revenue & Customs will present a petition to the High Court to wind up the company due to its insolvency or start other legal actions. This is in effect, a letter before action. Attached to the letter will be a statement of liabilities outlining the debts this warning letter covers. What is HMRC likely to do?
They have a number of aggressive debt collection tools available:
- Issue a County Court Summons to get a County Court Judgment
- Send in a Revenue officer from their Field Force or send a Bailiff after a Notice of Enforcement
- Issue a winding up petition following the letter.
You must act quickly to rectify these issues as the petition must be advertised in the London/Belfast Gazette within 7 business days of being issued. This can lead to the company's bank accounts being frozen and other creditors supporting the petition, therefore making it harder for the company to be salvaged, as more organisations need to be paid.
What should I do if I can't pay?
First things first, don't just ignore the letter - HMRC will automatically take action if they don't receive a response within 7 days. The ideal way to solve this issue is to pay the debt. However, many companies are not in a position to do so. To avoid this, there is a great solution called a Company Voluntary Arrangement (CVA). A CVA is simply a deal between the insolvent company and its creditors; this deal places a legal ring fence, called a moratorium, around the company and stops creditors attacking the company. It allows a viable but struggling company to repay some, or all, of its historic debts out of future profits, over a period of time to be agreed.
Directors stay in control of the company, stopping legal actions like HMRC winding up petitions, if you use a quality, experienced advisor for support, such as us at KSA.
So what can HMRC do to collect its tax arrears?
They can issue:
- County Court Summons
- County Court Judgement (CCJ)
- Bailiff actions or warrant
- Notice of enforcement
- Winding Up Petition
Visit our page on creditors legal actions for definitions and advice for all the above.
The most important thing is really not to ignore the letter. If HMRC say they will take action in 7 days they usually will.
Worried about poor cashflow? How to win new work? How to pay wages on pay day? For expert advice on a range of issues download our free Ultimate Guide For Worried Directors today. Or just call us on 0800 9700539
Please note that the guide was written pre Covid-19 and there are some likely changes to insolvency rules regarding wrongful trading. Please see this page here.