Preferential status for HMRC revisited

The Chancellor announced during the recent budget that from the 6th April 2020 certain debts owed to HMRC will be treated as secondary preferential debts, moving them up the order of priority and providing HMRC with a greater ability to recover taxes paid by employees and customers.

The debts in question, which are proposed to include VAT, PAYE, NIC, and CIS.deductions, will remain below ordinary preferential debts in the priority order as set out in s175 of the Insolvency Act, but will be given secondary preferential debt status, as defined in s386(1B). The Policy Paper released by HM Treasury, “Protecting your taxes in insolvency” (available at your taxes in insolvency budget 2018 brief) indicates that any impact on lending as a result of the announced change will be minimal, because financial institutions will continue to have precedent over HMRC in asset recovery in respect of fixed charges.Secondary preferential debts are however paid before those subject to floating charges.

The practical details of the announcement have yet to be agreed, in particular the extent to which those debts will qualify for secondary preferential status, but it is clear that the process currently used to distribute assets will need to be altered to accommodate it.

Posted 11:43 AM | Permalink