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Financial problems are very common and often mark a low in people’s lives. However, as one High Court case showed, it is no good burying your head in the sand: taking professional advice at an early stage can bring peace of mind and save you money in the long run.
The case concerned a businessman who had allowed his tax affairs to descend into chaos over a number of years. HM Revenue and Customs (HMRC) had issued a statutory demand for over £176,000 in back-taxes, interest and penalties. Making a statutory demand is a procedure for collecting debts and a statutory demand which is unmet allows the creditor to apply for an individual to be made bankrupt or a company to be placed in liquidation.
The businessman was arrested after failing to attend a court hearing and was ultimately declared bankrupt. He claimed that both the statutory demand and the bankruptcy petition had been served on the wrong address and that he had no inkling of the proceedings prior to his arrest. He denied that he was hopelessly insolvent and claimed to owe HMRC less than £15,000. He was, however, ordered to pay substantial legal costs after his application to set aside the bankruptcy order was rejected by a judge.
In dismissing his appeal against that decision, the Court noted that his failure to file tax returns was one reason why HMRC was unaware of his business address. Whether or not he had actually received the documents, HMRC had done all that was reasonable in attempting to bring them to his attention and they had been served on him in accordance with the rules.
Even if the sum claimed by HMRC was excessive, the bankruptcy order meant that it was legally due and binding upon him by virtue of the Taxes Management Act 1970. He was also said to owe other creditors more than £177,000.
Says Paul Currie, “Clearly, letting your tax affairs get into arrears is never a good idea. In this case, an early intervention might well have led to a negotiated settlement and an altogether happier result.”