--- title: "HMRC v Purity Limited: Umbrella Company Wound Up Under New Section 85 Tax Avoidance Powers" url: https://taxdisputes.co.uk/2026/09/hmrc-v-purity-limited-umbrella-company-wound-up-under-new-section-85-tax-avoidance-powers/ date: 2026-09-25 modified: 2026-09-25 lang: en author: "Tax Dispute Solicitors" description: "HMRC v Purity Limited confirms HMRC can wind up a company under Section 85 before any tax dispute is resolved and the risk follows directors personally." categories: - "High Court" - "HMRC" - "HMRC Account Freezing Order" - "HMRC Assessments" - "HMRC Penalty" - "HMRC Winding-up Petition" - "Income tax" - "Legal Insights Tax Law Dispute Resolution Tribunal Proceedings" - "Limited Companies" - "Personal Liability Notices (PLNs): Defence Strategies for Directors" - "Tax avoidance" - "Tax Evasion" - "Tax Issue" - "Tax Law" tags: - "compulsory liquidation" - "Director Disqualification" - "HMRC" - "HMRC Investigations" - "HMRC Tax Disputes" - "Insolvency Act 1986" - "Phoenixism" - "Promoters of Tax Avoidance Schemes" - "Section 85 Finance Act 2022" - "Stop Notice" - "Tax Avoidance" - "umbrella company" - "Winding-up Petition" image: https://taxdisputes.co.uk/wp-content/uploads/2026/09/section-85-finance-act-1024x683.png word_count: 1141 --- # HMRC v Purity Limited: Umbrella Company Wound Up Under New Section 85 Tax Avoidance Powers Most commentary on [HMRC v Purity Limited [2025] EWHC 3401 (Ch)](https://caselaw.nationalarchives.gov.uk/ewhc/ch/2025/3401) treats it as a straightforward legal update: HMRC won, here's why. That misses the point for anyone actually running a business that could be targeted next. This judgment isn't really about Purity; instead, it's a signal that HMRC now has, and is prepared to use, a power that can end a company before its underlying tax dispute is even resolved. If your business operates in a sector HMRC associates with aggressive tax planning, whether they be umbrella companies, contractor payroll schemes, "loan"-based remuneration, or anything flagged under the Promoters of Tax Avoidance Schemes regime, then this is a practical risk to plan for, not background reading. This article analyses the effects of HMRC v Purity Limited on companies facing insolvency issues and the scope of section 85 of the Finance Act 2022. ## Section 85 Finance Act 2022 Explained: HMRC Winding-Up Power in Plain Terms [Section 85 of the Finance Act 2022](https://www.legislation.gov.uk/ukpga/2022/3/section/85) lets HMRC petition to [wind up](https://lexlaw.co.uk/winding-up-petition-lawyers/) a company on public interest grounds, not because the company owes HMRC money, but because HMRC believes shutting it down protects the public revenue. It applies to a "relevant body" connected to the [POTAS regime](https://www.legislation.gov.uk/ukpga/2014/26/part/5) in the Finance Act 2014. The test is the same "just and equitable" standard used in ordinary public interest petitions, under [section 122(1)(g) of the Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/122). The single most important thing the *Purity* judgment confirms, and the reason every business advised on tax structuring needs to understand it, is this: HMRC does not need to have won the underlying tax dispute first**.** It doesn't need a final ruling that your scheme failed, or that you personally owe tax, before it can ask a court to close your company down. This is a pre-emptive tool, not a last resort. ## Red Flags: Why HMRC Wound Up Purity Limited Purity's petition succeeded on three grounds. Read individually, each is a checklist of practical risk factors a business should honestly assess itself against: - **Revenue at risk with no way to recover it****:**  Purity had withdrawn its tax tribunal appeals, which under [section 54 of the Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/54) is treated in law as if it had lost on the merits. Combined with insolvency and an underfunded "loan repayment" vehicle in Dubai holding just £470,000 against £45 million in advances, HMRC had no realistic prospect of ever recovering the tax. If your business structure depends on an offshore fund, reserve, or repayment vehicle that couldn't actually cover its obligations if called upon, that's precisely the gap the court penalised. - **A pattern of shutting down scrutiny rather than answering it****:** Workers were given inconsistent explanations and template responses designed to stonewall HMRC's enquiries. Any business whose standard response to a regulator's questions is deflection rather than transparency is building the same evidential record HMRC used against Purity. - **Phoenixism:** **restarting a shut-down scheme under a new name.** Purity was found to be, in substance, a continuation of a nearly identical business (Alpha Republic Limited) that had already collapsed under HMRC pressure, sharing people and back-office providers. If a business has been rebuilt from the ashes of a previous HMRC intervention, that history doesn't disappear; the court will definitely look at it. ## Defending Against a Section 85 Winding-Up Action If your business receives one of these petitions, the response window is short and the consequences are severe: a winding-up order could terminate the [company's ability to trade](https://windinguppetitionsolicitors.co.uk/can-you-still-trade-after-a-winding-up-petition-is-presented/) and creates serious personal risk for its directors (below). ### Practical steps: - **Get specialist litigation advice immediately** since this is a court petition, not a compliance letter, and it needs to be met with a formal legal response. - **Do not assume voluntary liquidation avoids the problem.** The court in *Purity* confirmed that HMRC can still pursue a compulsory winding-up even after a company has entered a voluntary liquidation of its own accord, and a compulsory order gives the appointed liquidator stronger investigative powers than a voluntary process typically allows. - **Assess your transparency record now, not after a petition arrives.** How your business has responded to any HMRC enquiry, and what your workers, clients or agents have been told about any tax-related arrangement, will be scrutinised in full if a dispute escalates. - **Understand that this is not solely a company problem.** It follows you personally as a director too. ## Director Disqualification Risk Under a Section 85 Winding-Up This is the part that gets underplayed in most commentary. A compulsory winding-up under section 85 opens the door to automatic disqualification proceedings against directors under [section 8ZF of the Company Directors Disqualification Act 1986](https://www.legislation.gov.uk/ukpga/1986/46/section/8ZF), a route that isn't available through an ordinary voluntary liquidation. In other words, structuring a business around an aggressive tax scheme doesn't just put the company at risk; it puts your ability to act as a director of any company at risk. HMRC's own published guidance confirms that [tackling promoters of tax avoidance](https://www.gov.uk/government/publications/promoters-of-tax-avoidance-schemes-guidance) through Stop Notices, publication of names, and now compulsory winding-up is a coordinated, escalating strategy, not a one-off enforcement action. ## Why You Need Specialist HMRC Winding-Up Petition Solicitors Because section 85 lets HMRC act before the underlying tax dispute is resolved, standard tax-dispute strategy (contest the assessment, appeal, wait for the tribunal) isn't enough on its own. A business exposed to this risk needs a combined strategy addressing both the underlying tax position and the separate, faster-moving insolvency threat ideally before HMRC issues a Stop Notice or petition at all, not after. Instructing specialist litigation solicitors and barristers based in the legal heart of London in Middle Temple ensures that both the tax dispute and any winding-up threat are handled together, by a team who can act at the Tax Tribunal, in insolvency proceedings, and in the High Court. Our unique integration of dual-qualified solicitors and in-house barristers provides seamless representation from early HMRC correspondence through to trial. If your business has received a Stop Notice, a section 85 petition, or an HMRC enquiry into a payroll or "loan"-based remuneration structure, early specialist consultation is vital to protect the company and its directors. ### Section 85 of the Finance Act 2022: FAQs **Can HMRC still wind up my company if I've already started voluntary liquidation?** Yes. The court in Purity confirmed that HMRC can pursue a compulsory winding-up even after a company has entered voluntary liquidation, and a compulsory order gives the liquidator stronger investigative powers. **What sectors are most at risk from Section 85 petitions?** Businesses that HMRC associates with aggressive tax planning, such as umbrella companies, contractor payroll schemes, "loan"-based remuneration structures, and anything flagged under the POTAS regime. **What should I do if my business receives a Section 85 petition?** Get specialist litigation advice immediately, don't assume voluntary liquidation resolves the issue, and review your business's transparency record with HMRC since this will be scrutinised in full if the dispute escalates.