For forty years I’ve watched the tide of corporate distress come in and go out. What I’ve never had, that is until now, is a way to see it coming in real time. So this year we built one: an in-house Early Warning System that watches every West Midlands based company, including winding up petitions as they land against them – from the moment a petition is filed at court, weeks before it surfaces in the London Gazette where everyone else eventually reads it. It has been running only since February, so I’m not going to pretend I have a decade of trend data. But even a few months in, one finding jumps off the screen and demands to be said out loud.
HMRC is behind around 60% of the winding-up petitions against companies in our region.
Let that land. Not the banks. Not the landlords. Not the trade suppliers who are actually owed money for goods delivered and work done. The single biggest force pushing West Midlands companies towards the wall is the state itself, in the shape of HM Revenue & Customs. Where the petitioner is named, HMRC accounts for six in ten. The next largest single petitioner on our list managed just seven petitions in the whole period. Seven, against HMRC’s hundred-plus. It isn’t a close race; it’s a different sport.
Who else is petitioning – and who isn’t
The rest is a long, thin tail, and it’s instructive. Energy suppliers feature – perhaps that is no surprise after two years of brutal wholesale prices. Builders’ merchants appear, which tells you exactly how the construction sector is faring. The occasional bank, the occasional local authority chasing business rates. But no private creditor comes remotely close to the Revenue, and that itself is a signal. Trade creditors, on the whole, still don’t want to wind up their customers. They’d rather be paid, keep the relationship, and take a haircut over a hearing. HMRC increasingly takes the opposite view. It has decided that patience is a cost it can no longer carry.
So why the apparent surge?
Here I’m offering judgment, not certainty – and I’d caution anyone reading our numbers to remember the dataset is young. But the pattern fits a story I’ve watched unfold on the ground, and it comes down to catch-up.
Through the pandemic and its long aftermath, HMRC was, frankly, asleep at the wheel. Time to Pay arrangements were handed out almost for the asking. Enforcement teams were redeployed or stood down. A vast queue of tax debt built up behind a dam of forbearance, and for a while nobody was clearing it. Directors, understandably, treated the Revenue as the most patient creditor in the room – the one you paid last, because it never seemed to chase.
That era is over. What we’re seeing now is the dam breaking: the accumulated bill arriving all at once – and I’m seeing HMRC chase tax debts going back several years, in one case recently back to 2019! There are, I suspect, three forces behind it. First, the political and Treasury pressure to collect – the public finances are stretched, and unpaid tax is money the government has, on paper, already counted. Second, capacity: the forbearance teams have become enforcement teams again. And third – the one most directors have forgotten – HMRC’s return to preferential creditor status in December 2020. For PAYE, VAT, employee NICs and CIS deductions, the Revenue now jumps much of the queue in an insolvency. When you recover more by acting, acting makes commercial sense. Preference plus pressure plus capacity is a potent mix, and petitions are the sharp end of it.
There is a less charitable reading, and I’ll put that on the table too: that having been asleep, HMRC has over-corrected, and is now petitioning companies that a more commercially-minded creditor would have kept alive and collected from over time. Some of these businesses are genuinely gone. But some are viable enterprises with a tax problem, and a winding-up petition is a blunt instrument to use on them. That’s a debate worth having in public.
What it bodes for the months ahead
I’ll be blunt: worse before better. A new Prime Minister and cabinet are still finding their feet, and a government under pressure to raise revenue without raising headline tax rates has every incentive to collect harder on the tax already due. The wider economy is, at best, soft – flat growth, stubbornly higher costs, thin margins, and a construction and hospitality sector under real strain. Companies that limped through before on cheap debt and goodwill are running out of both.
And our own data already points the same way. This is where the leading edge matters. The confirmed Gazette figures actually eased over the spring – but the Gazette lags reality by four to six weeks. Our court-filing feed, which sees the petition the day it’s issued, is climbing again: the last two months are the busiest we’ve recorded. What that means in plain terms is that the confirmed numbers everyone else watches are about to catch up to a rise that has, in fact, already started. We can see it before the market can. That is the entire point of building the thing.
The practical bit – because a blog should be useful
If you’re a director carrying tax arrears and telling yourself HMRC will keep waiting, please stop. The grace period has closed. A winding-up petition, once advertised, freezes your bank accounts and can end the company inside weeks; by the time it’s in the Gazette your options have narrowed to almost none. The window to act is before the petition, not after.
That means engaging with the Revenue early and credibly, getting a realistic Time to Pay proposal in before enforcement, and – if the numbers genuinely don’t work – taking advice on a restructuring or an orderly solution while you still control the outcome. There is a world of difference between a director who comes to us in month one with a plan and one who arrives with a petition already stapled to the front door.
For fellow advisers and accountants: this is the conversation to have with your clients now, not in the autumn. The companies most at risk rarely think they’re at risk until the post arrives. Early sight is everything – it always has been. We’ve just finally been able to build the tool to give us more notice – so do not ignore emails I send you if you are a dierctor of a struggling company or their advisor, you need that space to deal properly with the problem.
The taxman is doing the winding up. Assume he’s already looking at your numbers, because on this evidence, he probably is.
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