Your chance to input into a consultation on this crucial area.
The Enterprise Act introduced a series of measures designed to strengthen the UK competition framework, transform the approach to bankruptcy and corporate rescue and empower consumers. Part of this was that HMRC’s preferential status was removed.
The consultation Protecting your taxes in insolvency is open until 27 May and sets out the government intention to introduce legislation in the Finance Bill to make HMRC a secondary preferential creditor for certain tax debts paid by employees and customers on the insolvency of a business. It includes deductions made under PAYE (including student loan repayments), NIC (employee contributions only), CIS and VAT that have been deducted and are due to HMRC at the commencement of the insolvency.
The consultation states that for ‘all formal insolvencies that commence after 6 April 2020, HMRC will move up the creditor hierarchy for the distribution of assets’ and ‘will become a secondary preferential creditor for the specific taxes paid to a business by employees and customers, and any interest or penalties arising from such debts’ in England, Wales and Scotland.
It is then stated that this ‘means HMRC will move ahead of holders of floating charges (mainly financial institutions) and other non-preferential unsecured creditors, but remain below holders of fixed charges (also primarily financial institutions) and higher-ranking preferential creditors'.
A concern will be how the finance industry reacts to the proposed changes and if it increases the use of personal guarantees and fixed charges ahead of floating charges.