From April next year, HM Revenue & Customs (HMRC) will rank third just after secured creditors, such as banks, and insolvency practitioners in order to recover additional outstanding tax from failing businesses

Currently, HMRC is ranked alongside unsecured creditors, such as suppliers, trade creditors, contractors and customers, who on average rarely recover more than four per cent of debts owed.

However, the change will mean that they are now likely to recover a higher percentage of tax, which will contribute around £185 million extra a year to the public coffers, according to the Government.

The taxman’s new ‘third place’ position in respect to employment taxes and national insurance contributions means that its claims will jump ahead of floating charges from secured creditors, such as debt provided by financial institutions.

The VAT paid by customers on goods will also jump up the queue, although claims relating to other charges, such as corporation tax, still rank alongside other unsecured creditors.

This latest decision is a reverse of the previous crown preference arrangements that were removed in 2003. These were abolished after a record number of smaller corporate entities began winding up in the late 1990s following concerns that HMRC was inadvertently pushing them into liquidation through its tax recovery activities.

Link: Protecting your taxes in insolvency

The following two tabs change content below.
Ian Stocks

Ian Stocks

Commercial Manager at Smailes Goldie Group

“In practice these changes are likely to impact upon banks with debenture security but ultimately unsecured creditors will have an even smaller pot from which distributions will be made. There are ways to combat these changes but robust credit management is key. If you have any concerns about credit control with your business, call us for independent advice on 01482 326916.”

Subscribe to our e-newswire
To receive our e-news and events updates, please enter your details:
If you would like to see full details of our data practices please visit our Privacy Notice.

I am happy to receive newsletters and promotional information from Smailes Goldie.