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The Return of Preferential Creditor Status for HMRC debtsPosted: Apr 9, 2019

On 26 February 2019, the government issued a consultation to make HMRC a ‘secondary preferential creditor’.

My recent experience of government consultations is that the Government has made the decision and is going through the process and so this will come into force largely unchanged. The proposed changes would come into effect on 6 April 2020, so now only a year away.

It should be remembered that we have been here before. Prior to 2003, HMRC was a preferential creditor for certain taxes, paid in priority to unsecured creditors. At the time it was changed as a number of measures to stimulate business recovery and allow a return to unsecured creditors.

It is now claimed the losses to the Exchequer have increased and the new measures will bring in £175m per year. Maybe I am now getting old but back in 2003, it was said that the sums involved were small and so I am not sure what has changed other than the government raising extra revenue!

The proposal suggests PAYE/NIC, CIS and VAT will be preferential. The logic appears to be the insolvent party was only acting as a ‘collection’ agent for HMRC in any event. There is no time limit to these debts which is odd given that previous preferential rules were that VAT was preferential for 6 months and PAYE/NIC was for 12 months.

These new preferential creditors will be paid after the current preferential creditors (effectively wages and holiday pay) but before the prescribed part, floating charge creditors and unsecured creditors.

Personally I see the outcome as follows;

What is clear is that both directors and creditors will need to be aware of these changes.

Find out more about how we can support you through this difficult period.  We’re here to help with clear, straightforward guidance.

Call us on 0116 2325117 (Leicester) or 01926 671891 (Warwick), or email us on gavin@smartbusinessrecovery.co.uk

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