Can I challenge a statutory demand from HMRC?
Yes. If you have been served a statutory demand you have the right to apply to court to set aside the statutory demand (pursuant to rule 10.4 of the Insolvency Rules 2016).
You must act quickly (usually 18 days) to avoid the creditor applying to bankrupt you (if you are an individual) or present a winding up petition (if you are a company).
When must the application to set aside HMRC’s statutory demand be made?
It is important to ascertain when the statutory demand was served upon you (and essentially whether it was validly served). An application to set aside a statutory demand must be made within 18 days from the date the statutory demand was served.
Can a statutory demand from HMRC be set aside outside the time limit?
The advice would always be to adhere to the deadline and apply to have the statutory demand set aside within the 18 day window as far as practicable.
However, the Court may consider an application to set aside a statutory demand outside the time limit (note: this discretion only applies if the creditor has not requested for a bankruptcy petition to be issued yet). It is imperative to seek legal advice as soon as a statutory demand is served upon you, otherwise you may not be able to set aside the statutory demand in time.
What if I agree that I am liable for the debt in HMRC’s statutory demand?
If you agree that the debt is due, tax debtors in that situation may wish to instruct a solicitor experienced in insolvency to negotiate a settlement plan with the creditor (or their solicitor if they have legal representation).
It is important to try and negotiate a settlement plan within the 21 day statutory demand period, some options to consider are (note: these options do not constitute legal advice):
- instalment plan;
- consider refinancing or a bridging loan;
- offer a voluntary charge against your property to secure the debt;
- obtain a personal guarantee from a relative or friend;
- negotiate a reduction in the debt to less than £5,000 (therefore the creditor will then not be able to issue a bankruptcy petition); or
- apply for an individual voluntary arrangement (to agree an arrangement to pay your debt in instalments over a defined time period).
How do I apply to have a statutory demand set aside?
1. Ascertain the reason why the statutory demand should be set aside
The Court can set aside a statutory demand if any of the following reasons apply (pursuant to rule 10.5(5), Insolvency Rules 2016):
- the tax debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;
- the tax debt is disputed on grounds which appear to the court to be substantial i.e. you believe that HMRC’s tax assessment is factually wrong;
- it appears that HMRC holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or
- the court is satisfied, on other grounds, that the demand ought to be set aside.
The Court will also consider other reasons to set aside a statutory demand including: the statutory demand has not been issued in the correct manner, you owe less than £5,000 or you have a legal defence to court action being taken against you.
2. Find the right court
The statutory demand should contain the information about where and how an application can be made to set aside the statutory demand. For example, if the statutory demand is from HMRC and the demand states that the petition will be presented in the High Court, then an application to set aside the statutory demand should be made at the High Court.
3. Complete application form IAA
You can download a word version template Form IAA here. Guidance notes can be found here.
It is important to seek legal advice when completing Form IAA because all relevant information must be included such as the grounds for dismissing the statutory demand, the date you became aware of the statutory demand and copies of the demand and any evidence which you have sought to rely on.
4. Draft a witness statement in support of the application
Depending on the facts of your case, a witness statement can be submitted to the Court in support of the application.
Legal advice should be sought when drafting the witness statement, guidance notes on the Civil Procedure Rules states that a witness statement must:
- start with the name of the case and the claim number;
- state the full name and address of the witness;
- set out the witness’s evidence clearly in numbered paragraphs on numbered pages;
- end with this paragraph: ‘I believe that the facts stated in this witness statement are true.’ and
- be signed by the witness and dated.
5. Attend a hearing
If the Court is satisfied that there is a good reason for the application then you (or your solicitor) will receive a notice of hearing from the Court which contains the date, time and location of the hearing to set aside the statutory demand.
Our specialist insolvency team can arrange representation for you at the hearing. It is recommended that you attend Court as well in support of the application. We are based in the City of London but provide national coverage by either attending the hearing ourselves or by arranging counsel local to you to attend the hearing with instructions from us on how to proceed.
Next steps after an application to set aside a statutory demand from HMRC is dismissed
You may be liable for HMRC’s costs of and occasioned by the failed application to set aside the statutory demand.
HMRC can then straight away make a bankruptcy petition to make you bankrupt. Our team provides expert guidance on the bankruptcy process. Our FAQs provide a comprehensive guide on the bankruptcy rules.
Instruct specialist statutory demand solicitors
We provide a no cost initial case review to establish whether or not we can help you. We are a specialist City of London law firm made up of Solicitors & Barristers and based in the Middle Temple Inns of Court adjacent to the Royal Courts of Justice. We are experts in dealing with matters surrounding insolvency in particular issues. Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending bankruptcy petitions vigorously at the Bankruptcy Court, at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules.