Court Refuses to Halt HMRC Winding-Up Petition (Section 85 Finance Act 2022)

HMRC v Purity Limited [2024] EWHC 2965 (Ch) illustrates the extraordinary reach of HMRC’s public interest winding-up powers under section 85 of the Finance Act 2022 and why businesses facing such petitions must seek immediate specialist advice from experienced insolvency litigation solicitors. The case sits at the intersection of tax enforcement, public law, and corporate insolvency, and shows how the High Court expects these disputes to be fought out in the Insolvency and Companies Court rather than parked in procedural limbo. For directors and promoters of tax-driven structures, the ruling is a sharp reminder that the court’s winding-up jurisdiction is not merely a debt collection tool but a powerful public protection mechanism.

As LEXLAW regularly advises in matters involving winding-up petitions, directors’ duties, and complex regulatory disputes, early strategic intervention is often decisive. The judgment also confirms that companies cannot assume that launching judicial review proceedings will automatically shield them from an existential insolvency process.

Case Background

Purity Limited operated what is commonly described as an umbrella company business. Until February 2024, it acted as employer for individual workers whose assignments were arranged by employment agencies. Approximately 90% of those workers participated in a scheme promoted by Purity under which they were paid a minimum wage salary, with the balance of their earnings being paid as an “advance”, which the company asserted was a loan. On that basis, Purity contended that no PAYE or NICs were payable on the majority of the remuneration. HMRC, however, took the view that this was a disguised remuneration tax avoidance scheme and that payroll taxes remained due. HMRC also alleged failures to comply with consumer credit requirements and asserted that workers were not properly informed about any obligation to repay these supposed loans.

In November 2023, HMRC issued a “stop notice” to Purity on the basis that the business was promoting a tax avoidance scheme. Purity appealed that notice to the First-tier Tribunal, and HMRC applied to strike out that appeal. As a result of the stop notice, Purity ceased trading, but the tax consequences for the workers remained unresolved. In March 2024, HMRC went further and presented a winding-up petition against Purity under section 85 of the Finance Act 2022, relying on the “public interest” jurisdiction.

Shortly afterwards, HMRC issued PAYE determinations exceeding £9 million. Although those determinations were not yet under appeal, Purity indicated that it might challenge them in due course. In parallel, Purity issued judicial review proceedings in the Administrative Court challenging HMRC’s decision to present and pursue the winding-up petition. On that basis, Purity applied to the Insolvency and Companies Court for a stay of the winding-up proceedings pending the outcome of the judicial review. It was that stay application which came before Deputy Insolvency and Companies Court Judge Agnello KC.

Read the Full Judgment Below:

Key Findings in HMRC v Purity Limited

Public Law Defences Can Be Run in Section 85 Proceedings

A central plank of Purity’s argument was that it could not properly run its public law challenges within the winding-up proceedings themselves and therefore needed the protection of a stay pending judicial review. The court rejected this entirely. Drawing on the Court of Appeal’s reasoning in Beadle v HMRC [2020] EWCA Civ 562, the judge confirmed that, unless excluded by statute, a defendant is generally entitled to raise public law defences when faced with enforcement-type proceedings.

The court held that section 85 of the Finance Act 2022 contains no express or implied restriction preventing a company from advancing public law defences within the insolvency proceedings themselves. The judge stated, in substance, that the High Court hearing the petition is fully competent to determine both the jurisdictional prerequisites (such as whether the company is a “relevant body”) and any public law challenges to HMRC’s decision-making process.

This is a crucial point for directors and advisers: issuing judicial review proceedings does not deprive the Insolvency Court of its ability, or its duty, to scrutinise HMRC’s conduct.

Section 85 Petitions Are Not Merely “Enforcement Proceedings”

HMRC argued that a section 85 petition is a form of enforcement action. While the judge did not need to decide the label definitively, she made clear that the consequences of such a petition are far more profound than ordinary enforcement. A winding-up order brings the company’s business to an end and places its assets under the control of a liquidator. That reality, the court said, strengthens the argument that the company must be able to deploy the full range of defences, including public law arguments, within the petition proceedings themselves.

No Automatic Stay Just Because Judicial Review Is On Foot

Purity also argued, in the alternative, that even if public law defences could theoretically be raised in the Insolvency Court, the court should nevertheless exercise its discretion to stay the petition for reasons of convenience, cost, and procedural orderliness. The judge rejected this submission. The petition was already being case-managed towards a trial date, and the judicial review permission process would be resolved well before that trial. There was no duplication of work, no meaningful cost saving, and no injustice in allowing the insolvency process to continue.

The Court Will Decide the Merits at Trial

The judgment repeatedly emphasises the nature of public interest winding-up petitions. Unlike ordinary creditor’s petitions, which can be dismissed if the debt is genuinely disputed on substantial grounds, section 85 (and section 124A Insolvency Act 1986) petitions are designed to be resolved at a full trial. The court hears evidence, can order disclosure, and can permit cross-examination. All disputes, factual, legal, and public law, are to be resolved in that forum.

Implications of HMRC v Purity Limited

This case is one of the first detailed High Court decisions considering the procedural operation of section 85 of the Finance Act 2022. It confirms that Parliament intended this to be a powerful and flexible tool in HMRC’s armoury, closely analogous to the Secretary of State’s public interest winding-up powers under section 124A of the Insolvency Act 1986.

For promoters of tax arrangements, umbrella companies, and other businesses operating in regulated or sensitive areas, the message is stark: HMRC does not need to wait for years of tribunal litigation before seeking to shut a business down. If it considers it expedient in the public interest, it can go straight to the High Court.

At the same time, the judgment is not one-sided. It also confirms that the Insolvency Court is not a rubber stamp. Companies can challenge whether they fall within the statutory definition of a “relevant body”, can dispute whether HMRC’s conclusions are justified, and can attack the legality of HMRC’s decision-making process, all within the winding-up proceedings themselves.

This is precisely why instructing specialists in insolvency litigation and public law is critical. As LEXLAW’s experience in complex winding-up petitions demonstrates, these cases are not simply about accounting or tax computations; they are about jurisdiction, statutory interpretation, procedural fairness, and evidential strategy.

Defending Director and Company Exposure in Section 85 Cases

Although this case concerned the company rather than personal claims against directors, the practical reality is that a public interest winding-up order often acts as a gateway to further investigations and potential proceedings against those involved in the business.

A robust defence strategy in cases like this typically involves, first, forensic analysis of the business model and the statutory definitions relied on by HMRC. Secondly, it requires careful scrutiny of the decision-making process: who made the decision, on what evidence, and whether the statutory conditions were truly met. Thirdly, it demands a coordinated approach across insolvency, tax, and public law disciplines, something that generalist advisers are rarely equipped to provide.

Instruct Expert London Insolvency Lawyers

HMRC v Purity Limited demonstrates just how quickly a regulatory or tax dispute can escalate into an existential threat to a business. A section 85 Finance Act 2022 winding-up petition is not a routine commercial dispute, it is a strategic enforcement weapon capable of shutting down a company regardless of solvency, profitability, or ongoing tribunal proceedings.

Once such a petition is issued, the legal, commercial, and reputational risks multiply immediately. Banks may freeze accounts, counterparties may terminate contracts, and the business can suffer irreversible damage even before the court determines the case. This is why early, specialist legal intervention is not optional, it is critical.

At LEXLAW, we regularly advise companies and directors facing HMRC winding-up petitions, regulatory shutdown proceedings, and high-risk insolvency litigation. Our approach is forensic, strategic, and relentlessly focused on protecting the business and those behind it. If your business or clients are facing a public interest winding-up petition, HMRC enforcement action, or a regulatory insolvency threat, contact now for expert legal advice!