In Winnington Networks Communications Ltd v HMRC, the Chancery Division Companies Court (Nicholas Le Poidevin QC) refused the taxpayer company's application to have HMRC's winding-up petitions dismissed, as it had failed to provide evidence that it had a real prospect of successfully disputing the debt claimed by HMRC.
In April 2014, HMRC presented a creditor's petition for the winding-up of the company on the ground that it owed corporation tax of about £239,000.
The company appealed against the assessment to the First-tier Tribunal ("FTT") and applied for the petition to be dismissed on the basis that the tax liability was in dispute.
The petition was subsequently amended by HMRC to incorporate a VAT liability of £1.6 million. HMRC claimed that the company had not paid the input tax claimed and accordingly, it was not entitled to set it off against the output tax for which it was liable ("the non-payment issue"). HMRC issued an assessment in respect of the non-payment issue.
The company appealed against this assessment and applied to have the petition dismissed on the grounds that the VAT had not been agreed.
Further amendments were made to the petition to take into account additional assessments issued by HMRC. It was argued that no supply existed to allow the company to justify the inputs claimed and that the company had participated in VAT fraud ("the non-supply issue").
The Court's decision
The company's application to have HMRC's winding-up petitions dismissed, was refused.
The Court accepted that it was settled law that a debt disputed on substantial grounds could not give rise to a winding-up order. However, this did not entitle a taxpayer to simply assert that the claimed tax was in dispute. The company had to provide to the Court with sufficient information and evidence to demonstrate that it had a substantial case, and this it had failed to do. The Court concluded that its appeal to the FTT therefore had no real prospects of success in respect of either the non-payment issue or the non-supply issue.
This case demonstrates how crucial it is for a taxpayer who wishes to challenge a winding-up petition to prepare its case thoroughly. The Court will expect cogent evidence to demonstrate that there are sufficient grounds for disputing the tax liability claimed by HMRC. Such evidence can take the form of well-prepared witness statements and expert legal opinion in relation to the disputed tax. Taxpayers unfortunate enough to find themselves challenging a winding-up petition need to properly prepare their case otherwise they are unlikely to be successful.