If you have received a bankruptcy petition from HMRC, or have been warned that one is coming, the consequences can be life-changing. Your assets, home, business interests and professional status may all be affected.
Our insolvency solicitors act for business owners, professionals and other individuals across England and Wales who face bankruptcy proceedings brought by HMRC.
We help you understand your position, explore all available options and take swift steps to protect your interests.
Our HMRC Bankruptcy Petition Service
What Is An HMRC Bankruptcy Petition?
Many individuals are surprised by how quickly HMRC can escalate unpaid tax into bankruptcy proceedings. As one of the UK’s most assertive creditors, HMRC can take action even where a business is otherwise viable, and the consequences of a petition can be far-reaching.
HMRC has the power to present a bankruptcy petition against an individual (e.g. sole traders and directors) who owes £5,000 or more in unpaid tax, interest or penalties.
Bankruptcy is a formal court process that applies to individuals who cannot pay their debts. Presently, HMRC can apply for an individual to be made bankrupt if they owe £5,000 or more in respect of unpaid tax, interest or penalties which are not disputed and remain unpaid.
If a bankruptcy order is made, the administration of the bankruptcy estate is carried out either by the Official Receiver or by an IP, and they are known as the trustee in bankruptcy.
When a person becomes bankrupt, their assets (with certain exceptions) pass to the trustee in bankruptcy, whose function is to realise those assets and distribute the proceeds to creditors in a prescribed order of priority.
Restrictions are placed on individuals who are made bankrupt. For more information on this, please see our guide to bankruptcy.
How We Can Help with HMRC Bankruptcy Petitions
We act for and advise individuals who:
- Have received correspondence, a statutory demand or a bankruptcy petition from HMRC regarding outstanding tax
- Are concerned about mounting tax arrears and want to avoid bankruptcy
- Have already been made bankrupt and need advice on annulment
As specialist insolvency solicitors, we can provide vital assistance in dealing with HMRC bankruptcy petitions as follows:
- We can help with negotiations with HMRC, particularly in relation to structured Time to Pay (TTP) arrangements, which can often prevent a bankruptcy petition from being presented
- If the debt owed to HMRC is genuinely disputed or there are any other procedural defects regarding any statutory demand or bankruptcy petition served, we can deal with applications to the court to set aside the statutory demand or to defend the bankruptcy petition
- We can apply for adjournments of court hearings to allow for more time for settlement discussions, refinancing or to gather funds
- If a bankruptcy order has already been made, we can deal with an application to the court for an annulment or provide advice on the individual bankrupt’s duties and obligations to the trustee in bankruptcy and the effect the bankruptcy will have on the individual’s own financial and legal interests, especially concerning any shared assets such as the family home
We work closely with trusted insolvency practitioners (IPs), accountants and financial advisers where necessary, and we can also coordinate advice where there are linked insolvency issues.
How Do HMRC Bankruptcy Proceedings Start?
HMRC typically uses bankruptcy as a last resort.
The following is a general overview of the steps HMRC takes:
- HMRC will first attempt to contact the individual by telephone or letter to understand their financial position and to discuss the overdue tax liability.
- If the individual is unable to pay the full amount immediately, HMRC may discuss options such as setting up a formal TTP arrangement, which allows for the debt to be paid back in instalments over time.
- If steps 1 and 2 above fail, HMRC may serve a statutory demand on the individual requiring payment of the debt in full within 21 days.
- If the outstanding tax remains unpaid after service of the statutory demand, HMRC may present a bankruptcy petition at court. The court will issue the bankruptcy petition and set a hearing date. HMRC will then serve the bankruptcy petition on you. If you do nothing upon receiving the bankruptcy petition, the court may make a bankruptcy order at the first hearing.
It is vital to seek advice from a specialist insolvency solicitor as soon as HMRC makes contact to discuss an overdue tax liability.
Once a bankruptcy petition has been presented, it is our experience that the only way to avoid a bankruptcy order being made (as long as the debt is not disputed) is to either pay the outstanding tax owed in full (together with any interest and penalties) or to take advice from an IP about entering into an Individual Voluntary Arrangement (IVA).
Can You Dispute the HMRC Debt?
It can sometimes be the case that individuals disagree with the amount HMRC say is owed. You might be in the middle of a tax enquiry or appeal, or believe that payments have been misallocated.
If the debt is genuinely disputed on proper grounds, this can be a defence to a bankruptcy petition. Possible defences include:
- Evidence that the debt has already been paid
- You have a genuine set-off or counterclaim which would reduce the debt to below the bankruptcy threshold of £5,000
- HMRC has made a mistake in the amount claimed – NB this defence is only likely to work if it reduces the debt to below the bankruptcy threshold of £5,000
- The debt is based on an assessed liability for tax (rather than your own submitted figures) which can be challenged by submitting tax returns or appealing to the Tax Tribunal – again this defence is only likely to work if it can be shown that this will reduce the debt to below the bankruptcy threshold of £5,000
What If You Cannot Pay What HMRC Say You Owe?
There will be instances where an individual does not dispute that they owe the debt to HMRC (whether in full or in part) but is unable to pay the debt (or the undisputed part of it) immediately.
If this is the case, there are still options which may include:
- Negotiating a realistic TTP arrangement with HMRC;
- Agreeing a settlement funded by income, refinancing, asset sales or third-party contributions (e.g. from family members);
- Exploring an IVA as an alternative to bankruptcy; and
- Seeking an adjournment of the bankruptcy petition to allow time to pay the debt.
We will advise you on which route gives the best chance of protecting key assets such as the family home, and how HMRC and the court are likely to respond.
HMRC Bankruptcy Petition FAQs
Can HMRC really make me bankrupt for unpaid tax?
Yes. HMRC can petition for an individual to be made bankrupt for unpaid tax. The amount of tax owed must be £5,000 or more. HMRC is often one of the most aggressive creditors when it comes to pursuing unpaid debts. A bankruptcy order is likely to be made by the court if HMRC prove that the debt exists and that the individual is unable to pay.
What should I do if I receive a statutory demand from HMRC?
You should seek legal advice from a specialist insolvency solicitor immediately.
Once you have received a statutory demand, you only have 21 days to pay the debt or reach an agreement in regards to payment or 18 days to apply to the court to set aside the statutory demand if you dispute that the debt is owing on substantial grounds.
Ignoring a statutory demand is likely to lead to a bankruptcy petition being presented. If you fail to respond to a statutory demand, this strengthens HMRC’s position if a bankruptcy petition is later presented.
Can I stop an HMRC bankruptcy petition if I start paying?
Often yes, provided you act quickly.
The earlier you engage with HMRC once they first contact you to discuss the outstanding tax liability, the more options you are likely to have.
However, if you ignore HMRC and only take steps to deal with the matter once a bankruptcy petition has been presented, our experience is that the only way to stop a bankruptcy order being made (provided the debt is not disputed) is to pay the tax liability in full or to seek advice from an IP about entering into an IVA.
What happens if a bankruptcy order is made?
The Official Receiver or a licensed IP will be appointed as your trustee in bankruptcy. The trustee in bankruptcy takes control of your assets, which are then used to pay your creditors.
The bankruptcy order will impose restrictions on your financial and professional activities. Still, after 12 months, you are generally freed from having to pay most unsecured debts caught by the bankruptcy order.
Any monies held in bank accounts are generally considered an asset in your bankruptcy estate. The trustee in bankruptcy may release some funds to you for basic living needs. If you apply to open a new bank account, you must tell the bank that you are bankrupt.
For more information about bankruptcy generally, please check out our dedicated bankruptcy page.
Can a bankruptcy order be cancelled later?
In some cases, it is possible to apply to cancel (annul) a bankruptcy order.
This may be appropriate if the bankruptcy order should not have been made in the first place, all bankruptcy debts and expenses have been paid in full or secured to the satisfaction of the court or an IVA has been approved your creditors.
We can advise you on whether an annulment application is realistic in your situation.
Why Work With Our Insolvency Team
- We are ranked in the Legal 500 and Chambers and Partners for our legal expertise.
- Richard Wolff, our Head of Insolvency, has been recognised as a leading partner by the Legal 500, recognising the strongest partners in their field, leading on market-leading deals and endorsed by peers and clients alike.
- We are members of R3, the Association of Business Recovery Professionals.
- You will receive city-quality advice at regional prices.
- Price transparency – we provide our clients with a cost estimate at the outset of any engagement with ongoing cost updates throughout the matter.
- Our Partner-led service ensures that you receive the very best legal advice and commercially focussed support.
- Our insolvency and restructuring team has in depth experience across a diverse variety of sectors, focused on achieving your objectives and meeting your deadlines.
- We are a full-service law firm operating from a single-site office, which means our teams communicate effectively and efficiently and our insolvency and restructuring lawyers can draw on support when required from other specialist lawyers such as those in our corporate, property and dispute resolution teams.
- Our insolvency and restructuring solicitors use the latest technology to ensure that we are working as efficiently as possible and that geographical distance does not prevent us from providing you with excellent client service.
- Our fast response times enable us to deal with time-sensitive enforcement scenarios.
- We have excellent working relationships with many national, regional and local independent insolvency practitioners who can be called upon to provide their advice and input as and when required.
- Check out the Myerson Promise for more information on the benefits of working with us.
Contact Our Bankruptcy Team
If you are facing an HMRC bankruptcy petition or are worried that one may be issued, our Insolvency specialists can help.
Contact us today for clear advice and fast, practical support.
0161 941 4000
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Vicky Biggs
Legal Director
Vicky is a Legal Director in the Insolvency and Restructuring team at Myerson and has been with the firm since 2012. Utilising her commercial litigation experience, Vicky now specialises in contentious insolvency matters, advising insolvency practitioners, directors and individuals in relation to both corporate and personal insolvency issues.
Vicky advises on a wide range of insolvency matters, including claims made by administrators, liquidators and trustees in bankruptcy, director disqualification proceedings, remuneration approval applications, retention of title claims, validation orders, bankruptcy annulment applications and winding-up and bankruptcy petitions.
About Vicky Biggs