HMRC climbs the insolvency creditor list
HMRC has moved up the creditor rankings for any firms that enter the insolvency process from today (1 December).
The taxman has been granted preferential creditor status for companies that have entered administration, in a change first mentioned in the 2018 Budget.
Previously, when a business goes into administration, the first funds went towards paying the administrator, followed by any fixed charge on an asset such as property.
The next preferential creditors were employees, who got their wages paid from any funds left, followed by those with a floating charge.
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HMRC was an unsecured creditor and got paid last, but the taxman now ranks just after employees as preferential creditor and ahead of those with a floating charge.
The status only covers employee taxes collected by businesses such as pay as you earn (PAYE) income tax, national insurance contributions and student loan repayments.
It doesn’t include corporation tax or employer national insurance contributions.
“Many sums owed to HMRC will be unchanged in their status, and so will remain payable lower down the priority order,” HMRC said.
“HMRC will continue to engage with insolvency practitioners to ensure that claims processing is efficient.”
There have been concerns that this will increase the cost of bank lending with a floating charge, as this has been moved down the list of creditors as a result of the change.
It may also be harder to access the alternative route of secured lending.
“A number of asset-based lenders have already been looking to exit, or scale back, existing inventory facilities, reducing the options for businesses seeking funding,” Ian Bath, corporate sales director for Nucleus Commercial Finance, said.
“With the emergency lending schemes soon coming to an end, many businesses will be looking for secured longer-term lending.
“Asset based lending will play a vital role, enabling businesses to unlock additional value from the assets they already own, providing them with certainty in times of great uncertainty.”