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HMRC reclaim their status

Published: 23/07/2019 By Andrew Bailey

To those outside of the insolvency profession, the news that HMRC will be reclaiming their preferential status in an insolvency process is not overly exciting. But the change could have ramifications that are not immediately apparent.

Currently if a business goes through an insolvency process then your bank or employees will rank first amongst the creditors when it comes to receiving money. HMRC ranks alongside all other unsecured trade and expense creditors.

According to new proposals, HMRC will now jump the queue for debts relating to VAT, PAYE and NIC and rank ahead of the bank’s floating charge and all other creditors.

The implementation date is 6 April 2020.

We wonder what reaction we will see from banks and suppliers in readiness for the change and their potentially increased risk?

Will the banks start to tighten up on lending further with the knowledge that any HMRC debt will have an impact on any recoveries in an insolvency scenario?

We wonder what steps are being taken by HMRC to improve their debt collection?

Perhaps this should have been the focus rather than making this change? We hope there will be continued improvements in collecting debts because any deficiencies in their collection process will have an enormous impact on other stakeholders.