HMRC set to benefit from Government reforms

In last month’s budget, the Government announced that with effect from 6 April 2020, certain claims by HMRC in insolvencies will benefit from an enhanced priority status.

Since the Enterprise Act reforms in 2003, which were intended amongst other things to promote business rescue, HMRC have ranked as an unsecured creditor alongside trade creditors.

The aim of the current reforms is said to be to ensure that tax collected on behalf of HMRC is actually paid to HMRC rather than being distributed to other creditors. It is proposed that the reform “will only apply to taxes collected and held by businesses on behalf of other tax payers“, ie. VAT, PAYE, income tax, employee national insurance contributions (“NICs”) and construction industry scheme deductions. The rules will remain unchanged for taxes owed by businesses such as corporation tax and employer NICs.  The Treasury’s view is that this will ensure that an extra £185m in taxes already “paid” each year reaches the Government.

Whilst the fine detail is still awaited, the impact of these reforms is likely to be to reduce the level of returns to unsecured creditors and to dampen a lender’s appetite to further fund a struggling but viable business which is experiencing cash-flow difficulties.

Emma Lovell, chief executive of R3 (the insolvency restructuring trade body), commented that the proposed reform “could potentially be a retrograde and damaging step to UK plc if not thought through carefully” and may “amount to a tax on creditors, including small businesses, pension funds, suppliers and lenders” making “borrowing for small businesses harder to come by”.  R3 hopes that the Government will reconsider its position following consultation with the insolvency profession over the coming months.

For further information please contact John Bradshaw or Sarah Mower in our Insolvency & Business Recovery Team.

Please remember that it is important to takes specific legal advice in relation to your own particular circumstances.

John Bradshaw specialises in business insolvency and restructuring within the Business Services department at Barker Gotelee Solicitors in Suffolk.

Ipswich Insolvency Solicitors – for more information on our range of legal services, please call the team on 01473 611211 or email