Overdue VAT? HMRC Can Wind Up Your Company

A decision of the High Court that a provisional liquidator could be appointed following a 'without notice' winding-up application by HM Revenue and Customs (HMRC) should serve as a warning to companies whose VAT affairs are in arrears.

The company in question was in arrears with its VAT and owed more than £7.7 million based on VAT assessments raised for three quarterly periods for which returns had not been made, and another £2 million for a later period. The nub of the argument between the company and HMRC was the quality of the evidence of the company's claims for the deduction of input tax.

The company had appealed to the First-tier Tribunal against the assessments, but at the date of the High Court hearing the appeal had not yet been scheduled.

The Value Added Tax Act 1994 states that where a person 'has failed to make any returns required under this Act…or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him'.

The judge rejected the argument that HMRC should be treated the same way as any other debtor would, commenting, "I do not accept that when petitioning to recover unpaid tax HMRC should be treated like any private litigant. When suing to enforce a claim for unpaid tax HMRC are exercising a public function; they are a public authority bringing a claim in the public interest. Any recovery is for the public benefit since it goes to increase the general revenue without which the modern state cannot function."

Accordingly, the appointment of the provisional liquidator was confirmed, despite the fact that the company's appeal against the VAT assessment had as yet not been heard.

The judgment confirms that HMRC have the power to put companies into liquidation even if there has been no final determination of tax due.