Budget 2018 – HMRC preferred creditor in insolvency

Insolvent businesses are to see an increase in the priority of HMRC’s claims for some tax debts.

With effect from 6 April 2020, HMRC will become a secondary preferential creditor (behind the limited preferential claims of employees) for VAT, PAYE, employee NICs, and Construction Industry Scheme deductions. This change draws attention to the responsibilities of businesses and directors for ensuring that the taxes they collect on behalf of the government are paid over to HMRC on time. It also highlights the risk of loss to ordinary and floating charge creditors.

It should also be noted that as part of the overall clampdown on avoidance and to stop companies going into an insolvency process to avoid tax debts there will be a change in the law. Where a company has been involved in tax avoidance, evasion or phoenixism the directors and other persons involved will be jointly and severally liable for the company’s tax liabilities.

Given the challenging trading environment for many businesses this year and into 2019, the impact of the new preferential status and prospective personal liability should be borne in mind when insolvency threatens, and seeking early advice is recommended.

If you require further assistance on this matter please call me or your usual Mercer & Hole contact.