HMRC to Become a Secondary Preferential Creditor

Our Insolvency Practitioners Comment on The Chancellor’s Proposal for HMRC to Become a Secondary Preferential Creditor

In his Budget statement of 29th October 2018, Phillip Hammond commented that the Budget was for Britain’s future – for the strivers, the grafters and the carers. But what about its likely impact on the world of insolvency? Now that the dust has settled a little, Tom O’Keeffe one of our insolvency case administrators, and our London based team of Insolvency Practitioners, suggests in this article that the proposed changes will, potentially, have a huge effect on Insolvency cases, which he comments on below. The main modification being to move HMRC’s claim from unsecured to preferential status in respect of dividends, which we see as a retrograde step.

The Proposal Will Have a Major Impact on Insolvency

The announcement that HMRC is to become a secondary preferential creditor, from April 2020, for taxes owed by companies in respect of employees and customers (this means income tax, NICs, and VAT, rather than corporation tax) will have a major impact on the level of funds available for unsecured creditors at insolvency. With this massive change due to be implemented in c.17 months’ time, it is understood that a consultation will be carried out with insolvency practitioners and the wider insolvency profession. We welcome this.

A Tax on Unsecured Creditors

This is obviously a major policy change for HMRC, with the move being in effect a tax on unsecured creditors, including small businesses, pension funds, suppliers and lenders, and reverses the status quo that had previously encouraged business rescue since 2002.  It is for this reason that our insolvency practitioners believe that the policy announcement is a retrograde step. We look forward to engaging in the consultation.

Tax Avoidance, Evasion, Phoenixism and Other Insolvency Related Announcements

Two more insolvency related announcements are worthy of keeping an eye on:

The Government has proposed that an individual would have to: access debt advice, be assessed as being in problem debt by a debt adviser and to not have been in a Breathing Space in the previous 12 months.

The Main Policy Announcements

Away from the insolvency arena, the main policy announcements were:

What About Entrepreneurs’ Relief?

Pre-Budget, our Insolvency Practitioners commented on the rumour that the Chancellor would end Entrepreneurs’ Relief and assessed the implications of such a move for Members’ Voluntary Liquidations. The speculation  was unfounded for now (he did make a couple of minor tweaks to tighten the qualification requirements), but we’ll be keeping an eye on it for the budget 2019.

Contact our Insolvency Practitioners for Help When Insolvency Threatens

Based in London, Essex, Salisbury and the Cotswolds, our Insolvency Practitioners have been helping businesses threatened with insolvency for over 20 years. We have worked on over 2,000 cases of corporate insolvency. We help businesses turn their fortunes around or, where liquidation is the only option, we manage the process in as orderly way as possible.

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