HMRC takes a tough line on taxes with bankrupts

Small businessmen tempted by the idea that bankruptcy may be an easy solution to their difficulties are being targeted by HM Revenue & Customs officials who have become increasingly concerned about unpaid taxes, according to a leading law firm.

Wedlake Bell warned that HMRC was taking a much tougher line with bankrupts who have failed to pay their taxes, invoking rarely used powers that make the process of going bankrupt much more traumatic and enduring.

Over the past 12 months, the Insolvency Service has obtained bankruptcy restriction orders against 443 bankrupts, a 21 per cent increase on last year. Four years ago, just 80 such orders were issued. Bankruptcy restriction orders are only issued where a court believes reckless or dishonest behaviour has played a significant role in a financial failure.

The order limits the bankrupt's access to credit and may stop them becoming a director in a company for as long as 15 years.

Edward Starling, head of business recoveries at Wedlake Bell, said lawyers acting for HMRC were increasingly arguing that people failing to pay their tax bills on a consistent basis were neglecting their businesses and ought to face a bankruptcy restriction order.

"The authorities are making an example of business owners who have allowed their businesses to run up insurmountable tax debts by banning them from involvement in senior management positions of a company for a long time," he warned.

Mr Starling said the HMRC crackdown partly reflected the increasing number of businesses falling into bankruptcy in the current tough economic climate.

But he added that a further reason was the increasing loss of tax revenue suffered by the Government because of individuals failing to take responsibility for their business failures.