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Published 10 October 2026 · Hallmark Solicitors

An HMRC winding up petition rarely comes out of nowhere. Usually the client’s accountant saw the VAT arrears building months before. They heard the director say HMRC “would wait”, and then watched a payment plan quietly fall apart. This note is for them. We look at the warning signs and the latest figures, then at the decision that tends to settle things: keep talking to HMRC, or take legal steps early.

HMRC winding up petition figures: what has changed

The headline numbers look calm enough. There were 1,946 company insolvencies in England and Wales in August, and creditors’ voluntary liquidations were down 9% on a year earlier, according to the Insolvency Service’s latest monthly figures.

Compulsory liquidations are another story. There were 314 in August, up 8% on July and 5% on the same month last year.

The split is the interesting part. A voluntary liquidation is something the directors choose. A compulsory one follows a winding up order, which is usually made on a creditor’s petition.

And HMRC has been petitioning a lot more. It applied to wind up 4,761 businesses over unpaid tax in the most recent year measured, a 31% rise on 3,625, according to figures publicised in July 2026 by the accountancy group UHY Hacker Young. More of those petitions are sticking, too. 2,397 ended in winding up orders, up 27% from 1,886. UHY partner Peter Kubik put it plainly: “HMRC is increasingly using winding up petitions and the threat of liquidation as a debt collection tool.” Anyone who has sat with a director the week a petition lands will recognise that.

There is plenty for HMRC to chase. Tax debt stood at £43.8bn at 31 March 2026, with 45% of it more than 12 months old (HMRC’s 2025-26 annual report). New debt is still arriving a little faster than old debt is cleared: roughly £103.6bn arose in the year against £101.9bn cleared, on BDO’s analysis.

Borrowing isn’t getting cheaper either. The Bank of England held Bank Rate at 3.75% on 17 September, but three of the nine Monetary Policy Committee members wanted a rise to 4%.

Help with late payment is coming, slowly. The Small Business Protections Bill (formally the Commercial Payments Bill) was presented to Parliament on 19 May 2026. It would cap large firms’ payment terms with smaller suppliers at 60 days and let the Small Business Commissioner investigate and fine persistent late payers. Useful, in time. It does nothing for a client whose VAT quarter falls due next week.

Spotting a client heading towards creditor action

The signs usually turn up in your own file first. VAT and PAYE being used as working capital. A Time to Pay arrangement missed, or renegotiated more than once. Letters from HMRC’s debt management teams, county court claims from suppliers, a director who has stopped opening the post. (That last one is more common than it sounds.)

The clearest formal warning is a statutory demand. If the company owes more than £750 and doesn’t pay, secure or compound it to the creditor’s reasonable satisfaction within 21 days of service, the law treats it as unable to pay its debts (section 123(1)(a) of the Insolvency Act 1986).

Don’t wait for one, though. A creditor can petition with no demand at all, simply by showing that the company can’t pay its debts as they fall due (section 123(1)(e)). HMRC often does exactly that, and it catches out directors who have been waiting for a piece of paper that never arrives.

Once a petition is presented, things move fast. Any disposition of the company’s property after that date is void if a winding up order follows, unless the court orders otherwise (section 127). Once the petition is advertised in the Gazette, the company’s bank will usually freeze its accounts. Your client may then need a validation order just to pay the wages.

Time to Pay or early legal action: both sides

The case for negotiating with HMRC

HMRC would generally rather be paid than liquidate a trading company. Its own guidance says a taxpayer who can’t pay in full may be able to set up a payment plan, and that HMRC will check whether the plan is affordable. Some £6.5bn of tax debt sat in agreed Time to Pay arrangements at 31 March 2026, up from £5.7bn, on Leonard Curtis’s reading of the annual report.

A negotiated plan costs little and stays out of court. Where the client has a genuine short-term cash problem and a viable business, it is often the right first call, and the adviser is usually the person best placed to build the cash-flow forecast HMRC will want to see.

The case for early formal action

All of that rests on HMRC’s figure being right and on the client really being able to keep up the instalments. In our experience at least one of those is often shakier than it looks.

Take the debt first. If it is disputed on genuine and substantial grounds, the court will not let a winding up petition be used to collect it, and an injunction can be sought to stop the petition being presented or advertised. The usual examples are an estimated assessment that the company’s actual returns have since overtaken, or payments HMRC has failed to allocate. There’s a catch, mind. If the undisputed balance is still over £750, the dispute may not save the company.

Then the business. Where its problems run deeper, a payment plan may just postpone the inevitable. HMRC has ranked as a secondary preferential creditor since 1 December 2020 for taxes such as VAT, PAYE income tax and employees’ National Insurance, and that shapes any restructuring. A moratorium or company voluntary arrangement, started while the company still has options, may protect value that a fourth failed Time to Pay arrangement would not.

Directors’ duties matter too. When a company is insolvent or close to it, the directors have to consider the interests of creditors as a whole and give them proper weight, as the Supreme Court confirmed in BTI 2014 LLC v Sequana SA [2022] UKSC 25. So a deal with HMRC that leaves every other creditor unpaid has to be one the board can justify later.

Our view

Time to Pay works where HMRC’s figure is correct and the business can genuinely afford the instalments. Without both, delay is the danger, not litigation. The worst case is a client who signs up to a plan they were never going to keep, misses an instalment, and finds that HMRC’s next step is a petition rather than a phone call.

So help the client negotiate when the numbers support it. But refer early if the debt is disputed or the plan looks fragile, and straight away once a statutory demand or petition has arrived. A phone call before a petition is presented costs far less than a validation order application afterwards.

Conclusion

Advising company directors under financial pressure is uncomfortable. Some advisers avoid raising insolvency risk at all because it feels like a vote of no confidence. Understandable, but unhelpful.

Don’t suggest paying favoured or connected creditors first. Don’t encourage the client to move assets or money once a petition is presented. And don’t give a view on whether a debt can be disputed without legal input; the test is a technical one and the court applies it strictly.

Insolvency advice for directors does the most good before the petition. If a client has already been served, our page on the winding up petition from HMRC sets out the court process, and our support for professional advisers explains how referrals to our winding up petition solicitors work.

5 legal tips for businesses

1. Download your HMRC statements for VAT, PAYE and corporation tax this week and reconcile them with your own records. A genuine error is the strongest ground for stopping a petition.
2. If you are going to miss a payment, contact HMRC before the due date, not after. Take a 12-week cash-flow forecast and offer instalments you can meet. A missed instalment does more damage than a slower plan.
3. The moment a statutory demand arrives, put the 21-day period in the diary. If the debt is disputed, act inside that window, not after a petition is advertised and the bank has frozen your accounts.
4. Chase your own late payers now. The Late Payment of Commercial Debts (Interest) Act 1998 already lets you claim interest at 8% above Bank Rate, plus fixed compensation, on business-to-business invoices.
5. If the board is discussing whether the company can pay its debts, minute the discussion and the reasons for each decision. Don’t repay director or connected-party loans ahead of other creditors. Those minutes will be read later if things go wrong.

This article is general information, not legal advice. To discuss a client’s position, call 0800 037 1305 or use our contact page.

Sources

• Commentary: Company Insolvency Statistics August 2026, Insolvency Service (GOV.UK), 18 September 2026
• Warning as HMRC targets unpaid tax debts, Scottish Financial News, 31 July 2026
• 31% increase in the number of businesses HMRC tried to shut down for falling behind on tax, Yorkshire BusinessWoman, 28 July 2026
• HMRC Annual Report 25-26: tax debt holds at £43.8bn, Leonard Curtis, 12 August 2026
• Little sign of progress as tax debt rises to £44.7bn, BDO, 10 July 2026
• Bank of England holds rates at 3.75% but rises expected later this year, Money to the Masses, 17 September 2026
• Late payments crackdown as Bill enters Parliament, Entrepreneur UK, 19 May 2026
• UK Government introduces new legislation to tackle late payments, Project Plant, 19 May 2026
• If you cannot pay your tax bill on time, HMRC (GOV.UK guidance), accessed October 2026