Simon Willmett, financial director of Nucleus Commercial Finance, argues that the reinstated preferential status for HMRC in the event of a business insolvency may increase cash flow pressures for unsecured creditors
Nestled in the one hundred or so pages of the Budget, Chancellor Phillip Hammond announced that from 6 April 2020, HMRC will again benefit from a Crown preference. In a move recalling the early 2000s, HMRC will enjoy preferential status in the case of a business becoming insolvent.
HMRC will again be prioritized over the likes of floating charge holders and unsecured creditors. VAT, PAYE income tax, employees’ national insurance contributions (NICs) and Construction Industry Scheme deductions will all be covered under Crown Preference.
As stated in the Budget, from 6 April 2020, when a business enters insolvency, ‘more of the taxes paid in good faith by its employees and customers, and temporarily held in trust by the business, will go to fund public services rather than being distributed to other creditors’. The rules will remain unchanged for taxes owed by businesses themselves, such as Corporation Tax and employer NICs.
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