This means that in an insolvency, tax debts due will be paid ahead of monies owing to lenders, other businesses and pension schemes. HMRC is currently an unsecured creditor, after its previous preferential status was removed in 2002.

However, that changes on December 1 2020, when HMRC’s preferential status in an insolvency will apply to taxes collected and held by businesses on behalf of other taxpayers. This includes VAT; PAYE income tax; employee National Insurance contributions (NICs); student loan deductions; and construction industry scheme (CIS) deductions.

The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer NICs.

Since the move was first proposed at Budget 2018, the commencement date has been delayed by eight months, and the measure has been extended to Northern Ireland.

Preferential debts are paid after fixed charges and the expenses of the insolvency practitioner, but before the holders of floating charges and all other unsecured creditors.

Treasury analysis suggests the change in HMRC’s status will see the Exchequer gain around £5m annually by 2023/24. The analysis also concedes that prioritising the recovery of HMRC’s tax debt could mean that banks in particular are affected as they are the main holders of floating charges. They, along with other creditors, could receive a reduced dividend and may change their lending practices as a result of this measure.

Insolvency and restructuring trade body R3 and other business groups have described this policy as a threat to business lending and business rescue. R3 highlighted that it risks limiting the availability of floating charge lending, which it says is a key form of finance for retailers and SMEs, and has been increasingly popular over the last two decades.

Duncan Swift, R3 president, said: ‘The return of HMRC's preferential status in insolvencies is a badly-timed and ill-considered blow to the UK's enterprise culture. It will damage business lending and business rescue, and will affect jobs, livelihoods and the economy.

‘It's perverse that on the day that the Bank of England has taken steps to boost business lending, the government has taken a step in the opposite direction.

‘It is beyond frustrating that the Budget has confirmed the policy will be introduced without meaningful changes from what was first proposed.

‘The plans were first announced in 2018 with no consultation and, since then, there has been near unanimous opposition to them. Business groups and lenders have been clear that the policy will be a short-term gain for HMRC at the expense of a long-term cost for the economy.

‘A slight delay in the implementation date from April to December changes nothing. A bad policy in April is still a bad policy in December.’