Under legislation included in the draft Finance Bill, the Government is planning that, from 6 April 2020, certain tax debts owed by an insolvent company – including VAT, PAYE, and employee NICs – will be repaid to HMRC in priority to debts owed to floating charge holders and unsecured creditors, including a company’s pension scheme and its suppliers. Currently, HMRC is repaid alongside other unsecured creditors.
The letter, which is signed by ICAEW, ACCA, ICAS and trade body R3 among others, points out the change was announced, with no prior consultation, at the 2018 Budget. The signatories say that the proposals will make it harder to rescue businesses, will limit access to finance throughout the economy, will increase the impact of insolvencies on other businesses, and may even undermine government tax receipts. The letter states:
‘While we understand that the government wishes to increase the value of taxes repaid in the event of insolvency, there is a serious risk that the wider costs of the government’s approach will outweigh any expected benefit. ‘The proposal may have a significant and negative impact on access to finance in the UK, and will increase the impact of corporate insolvencies on pension schemes, trade creditors, consumers, and the wider business community.’ Government projections claim the move, alongside other changes, could raise £195m a year, in tax income, but the business groups argue this sum could be less than the amount that will be lost in taxes from businesses which can no longer be rescued, as a result of restricted access to finance throughout the economy. Floating charge funding, where money is lent against a changing asset like stock (rather than a fixed asset like a building), is one area that is expected to be hardest hit by the proposals.
Duncan Swift, R3 president, said: ‘Floating charge lenders will be less likely to see their money back if a business becomes insolvent under these proposals because a huge chunk of any insolvency repayments will now go to HMRC. ‘This will almost certainly make floating charge lenders less willing to lend. This means less money available in risky situations, particularly rescues, and less money available for the healthy businesses which depend on floating charge finance: retailers, and small and growing businesses among others.
‘We hope by writing to the Chancellor he will take a step back, re-evaluate and come to the conclusion there are better alternatives than a quick insolvency cash-grab.’ The business groups want to see the government’s proposals scrapped – or at least amended to counteract the potential consequences. Recommendations include capping the age of tax debts eligible for a preferential claim, or allowing existing floating charges to retain their precedence over HMRC’s new claim.
Your email address will not be published. Required fields are marked *