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HMRC winding-up petition dismissed

22nd Apr 2014
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This case highlights HMRC's increasingly aggressive approach to the collection of tax, but also shows the satisfactory outcome that HMRC are being treated in the same way as other creditors and cannot abuse the winding up petition process.

HMRC issued a winding up petition against Enta Technologies Limited based on the non-payment of tax raised in assessments whilst the taxpayer's appeal against those assessments was pending.

Enta is currently one of the UK's leading IT distributors.

 A relatively minor part of Enta bought and resold stock on a back to back basis, which included some export sales of items that are not akin to items used in the old MTIC frauds - high value, low volume - however as you will see MTIC was exactly where matters headed.  Enta made claims for the repayment of input tax as you would expect, which only resulted in a reduced payment and not an overall reclaim.

HMRC launched an investigation into Enta's VAT returns. As a result various assessments were raised denying the repayment of Enta's claims and required payment by it of a sum of in excess of £35m.

The first batch of assessments were based on HMRC's view that the transactions were connected to tax losses arising from Missing Trader Intra- Community ('MTIC') frauds. These assessments were appealed and were progressing towards a First Tier Tribunal hearing in the usual way.  

Additional assessments also reflected the view of HMRC that the transactions were connected to MTIC frauds of which Enta knew, or ought to have known, and it was accepted by HMRC that the issues and evidence involved in the second batch of cases overlapped with those in the first batch of appeals to the extent that a decision in favour of HMRC on those appeals was likely to be determinative of the appeals in the second batch of cases.

A third batch of assessments had been made based on non-MTIC matters and an application had been made to the FTT for permission to submit the appeals out of time.

Before the application to the FTT for permission to appeal out of time had been determined by the FTT, HMRC presented a winding-up petition against Enta based on the non-payment of assessments in the second and third batches.  The winding-up petition was stayed, pending a decision by the FTT in relation to the application for permission to appeal out of time.

The FTT granted permission to Enta to appeal the third batch of assessments out of time and in doing so stated that it was not persuaded by HMRC's argument that the appeals were hopeless.

The FTT further ordered that the appeals against the assessments in the second batch should be stayed until the determination of the MTIC appeals in the first batch.

At the winding up hearing the court advised HMRC that it was well established that the a winding-up hearing was not the place or process to be used to resolve real disputes as to the existence of a debt, and where it is a petition should be dismissed as an abuse of process.  

When an assessment is raised a statutory debt is created and it remains binding and due until any appeal to the tax tribunal was successful and the assessment cancelled or adjusted.  

As the tribunal had not made a decision to strike out the whole or part of proceedings before it on the basis that there was no reasonable prospect of Enta's case, or any part of it, succeeding, it was evident that the dispute was more than 'reasonable' and needed to be dealt with in front of the tribunal court and as previously stated the winding up court was not there to take the place of a tax tribunal.

 The court promptly dismissed HMRC's petition as it was an abuse of process and the related adverts in the London Gazette should not appear.

Taxpayers should take from this that they should resist HMRC's attempts to seek the winding up of a company or the bankruptcy of an individual where they are based upon assessments that are under appeal and have not been immediately dismissed.

 Readers of this blog should also take from this that no creditor should issue a winding up or bankruptcy petition on a disputed debt - it is an abuse of process and will not be tolerated by a court, which is often reflected in adverse costs orders being made against the petitioner. 

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