Plans to make HMRC a preferential creditor for the recovery of certain tax debts on the insolvency of a business were published for consultation in March 2019.
Whilst it had been announced in the 2018 budget, the consultation is seeking to move HMRC up the creditor hierarchy where an insolvent business owes VAT, PAYE income tax, employee national insurance contributions (NICs) or construction industry scheme deductions taxes. The new rules are intended to come into force for insolvencies after 6 April 2020.
HMRC previously used to be a preferred creditor but this was abolished in 2003. HMRC have stated that "losses to the exchequer from insolvency have increased" as a result and have proposed this should be reviewed, now, 16 years later.
HMRC would remain a non-preferential, unsecured creditor for recovery of direct business taxes, including corporation tax, capital gains tax and employer NICs.
The government does not propose to place any time limit on outstanding taxes. This means that any debts in respect of where an insolvent business owes VAT, PAYE income tax, employee national insurance contributions (NICs) or construction industry scheme deductions taxes, these taxes would be treated preferentially, regardless of how old they are.
Additionally any penalties or interest on outstanding tax debts would also form part of HMRC's preferential claim.
The consultation closes on 27 May 2019 with a response expected by the Autumn.
Altion Law can assist you if you believe your company maybe deemed Insolvent and HMRC will be a creditor. If you would like to have a confidential discussion with a member of our team, if you complete our contact us form, we will call you back at a time that is suitable for you or you can contact us directly on 01908 414990.