The UK government has published draft legislation for the upcoming Finance Bill, which emphasises the priority in insolvency cases will be outstanding tax bills over amounts owed to creditors such as financial institutions.
To be introduced from April 2020, the extra money which is to be repaid to HMRC under these proposals will come out of funds which would otherwise have been paid to creditors including pension schemes, trade creditors, lenders, and employees.
Go deeper with GlobalData
A consultation on the government’s proposals closed in May 2019. Following this consultation, the government is now proposing that in insolvency procedures starting in or after April 2020, certain debts owed to HMRC, including PAYE, employee NICs, and VAT, will be repaid in priority to debts owed to floating charge holders and unsecured creditors. Currently, all HMRC debt is unsecured. Following a consultation, the government has decided that tax penalties will not form part of HMRC’s preferential claim.
President of insolvency and restructuring trade body R3, Duncan Swift, said: “While the government has removed one damaging part of its original proposals – unproven tax penalty debts won’t be included in HMRC’s new priority claims – this is very much a case of the government shooting first and asking questions later. That’s not a recipe for good policy.
“The government should have gone much further in cutting back the scope of its proposals. Unlike the earlier, pre-2003 version of this policy, the size of the government’s priority claim is uncapped, creating significant uncertainty in insolvencies for lenders, businesses, and others. A cap on the age of tax debt eligible for priority status would have been an obvious way to limit the downsides of the proposal. Ensuring that tax debts don’t take priority over pre-existing floating charges would have made these proposals much fairer, too.”
“The policy really doesn’t seem worth it. The government is expecting a relatively small tax boost – under £195m a year, at most – and seems prepared to accept damage to access to finance and increased costs in insolvency to get it. The wider costs of this policy will outweigh the benefits. The government must think again.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataIn a notable case of insolvency earlier this year, the administration disposal sale of all assets of Hawk Plant Hire on 14th and 15th March 2019 raised just under £29m, according to the auctioneers.
Euro Auctions said over 2,000 pieces of plant and machinery from Hawk Plant Hire, which went into administration earlier in 2019, made a final hammer total of £28,967,840. However, in the upcoming Finance Bill the order of priority for repayment in corporate insolvencies remains firstly ‘Fixed charge’ creditors – creditors whose lending to a company is secured against a definable object.
