HMRC to be preferred creditor in insolvencies
Following the latest budget on 29 October 2018, one of the lesser publicised announcements is that HMRC will become a preferred creditor in UK insolvencies from April 2020, when a business enters insolvency taxes will go to funding public services rather than being distributed to other creditors.
This is a reversal of the decision made over 14 years ago when it was decided that HMRC would rank equally with all unsecured creditors and below floating charge holders.
The reform will only apply to taxes collected and held by businesses on behalf of other taxpayers, such as VAT, PAYE income tax and employee NICs. Meanwhile, the rules will remain unchanged for taxes owed by businesses, such as corporation tax and employer NICs.
The Treasury has said this will ensure that an extra £185m in taxes already paid each year reaches the government, but on the flip side will push ordinary trade creditors further down the pecking order.
With HMRC jumping priority over floating charge holders, there may well also be knock-on effects on the cost of borrowing – banks will want to see the additional risk they are now taking reflected in the rates they charge.
It is likely that this announcement will be brought into sharper focus over the coming months and the rescue and recovery market will be watching with a close eye.
In the meantime, if you have any questions on how this may affect you, please do not hesitate to contact us on 0207 186 1144.
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