Case Digest No. 4 · Contentious insolvency
HMRC public-interest winding-up petitions under section 85 Finance Act 2022
Commissioners for HMRC v Purity Ltd [2024] EWHC 2965 (Ch)
The High Court addressed HMRC’s power under section 85 of the Finance Act 2022 and confirmed that public-law defences may be considered by the Companies Court hearing the winding-up petition.
High Court (Chancery Division)
[2024] EWHC 2965 (Ch)
March 2025
Decision at a glance
The question, answer and consequence.
- Legal question
- The central issue was hMRC public-interest winding-up petitions under section 85 Finance Act 2022.
- Court's answer
- The High Court addressed HMRC’s power under section 85 of the Finance Act 2022 and confirmed that public-law defences may be considered by the Companies Court hearing the winding-up petition.
- Practical consequence
- The decision explains the evidential and public-interest considerations relevant to HMRC petitions brought under the Finance Act 2022 regime. It helps companies and advisers assess the risks created by suspected tax-avoidance activity before a winding-up hearing.
Factual background
Purity Ltd promoted a scheme whereby their employees were paid a salary, the balance of which was provided by way of an ‘advance’. Purity Ltd claimed this was a loan and, therefore, that no payroll taxes were payable on the bulk of the ‘salary’. HMRC asserted that the scheme operated at the cost of the general body of taxpayers. They issued a ‘stop notice’ to the company on the assertion that it was a tax avoidance scheme. Purity Ltd appealed this stop notice to the First-Tier Tribunal and HMRC has applied to strike out that appeal notice. A petition was issued by HMRC against Purity Ltd pursuant to s85 Finance Act 2022 and the Insolvency Act 1986 seeking the winding up of the company on the grounds of public interest. Purity Ltd subsequently issued an application in the Administrative Court challenging the decisions made by HMRC to issue and prosecute the petition and seeking a stay.
Issue
The central issue was hMRC public-interest winding-up petitions under section 85 Finance Act 2022.
Procedural history and reasoning
or some antecedent decision on public law grounds, save where the scope for challenging alleged unlawful conduct has been circumscribed by the relevant statutory scheme, which excludes such a challenge.
The question accordingly is whether the statutory scheme in question excludes the ability to raise a public law defence in civil (or criminal) proceedings that are dependent on the validity of an underlying administrative act. … In my judgment the express words used by a statutory scheme looked at in isolation may not be sufficient on their own to restrict or exclude public law challenges, BUT that may be the clear and necessary implication when the relevant statutory scheme is construed as a whole and in light of its context and purpose. … In approaching the question of statutory construction the nature and purpose of the statutory regime and the nature of the rights in issue are the STARTING POINT for consideration.’ ON THE WORDING OF s85 FINANCE ACT 2022 THERE IS NO EXPRESS OR IMPLIED RESTRICTION ON THE ABILITY OF THE COMPANY AS A DEFENDANT TO RAISE PUBLIC LAW DEFENCES. s85 Finance Act 2022 is not an enforcement proceeding. Although this is unlike the penalty notice before the court in Beadle, this is not essential for reliance on the approach in that case (as set out on the left).
There is no requirement under s85 Finance Act 2022 for HMRC to have taken other action before issuing the petition. Therefore, there is no reasonable opportunity in many of these cases to challenge the decision making of the public bodies before the petition is issued. NOTE: NO COMPARISON CAN BE MADE BETWEEN CREDITORS AND PUBLIC INTEREST PETITIONS PUBLIC INTEREST PETITIONS Are ultimately dealt with a trial as the court hearing the petition make determinations on the evidence before it. CREDITORS PETITIONS Require the court to be satisfied that there is a debt which is not disputed on substantial grounds.
Decision and key points
The High Court addressed HMRC’s power under section 85 of the Finance Act 2022 and confirmed that public-law defences may be considered by the Companies Court hearing the winding-up petition.
- Public-law defences may be raised in response to a petition under section 85 of the Finance Act 2022.
- The Companies Court should determine those defences before deciding whether to make a winding-up order.
- Section 85 petitions are materially different from ordinary creditor petitions.
Why this decision matters
The decision explains the evidential and public-interest considerations relevant to HMRC petitions brought under the Finance Act 2022 regime. It helps companies and advisers assess the risks created by suspected tax-avoidance activity before a winding-up hearing.
Particularly relevant to: Companies, directors, tax-dispute teams, HMRC practitioners and insolvency counsel.