The government has a launched a consultation “Protecting your taxes in insolvency” which looks at making HMRC a secondary preferential creditor for certain tax debts on the insolvency of a business. It closed on 27 May 2019.
At Budget 2018, the government announced that it will introduce legislation in Finance Bill 2019-20 to make HMRC a secondary preferential creditor for certain tax debts paid by employees and customers. Currently all tax claims are non-preferential unsecured creditors. The proposed change would only apply to businesses and would give the following taxes priority over non-preferential unsecured creditors (such as suppliers and customers) and secured creditors with floating charges:
- VAT
- PAYE (including student loan repayments)
- Employee NICs (but not Employer NICs)
- Construction Industry Scheme Deductions
This is to deal with the issue that, when a business becomes insolvent, the taxes paid by its employees and customers often go to paying other creditors instead of to HMRC, and therefore to funding public services as intended.
The questions asked in the consultation are:
Q1: The government is committed to increasing the priority of certain tax debts in insolvency. Should they be ranked as a secondary preferential creditor, an ordinary preferential creditor, or protected in some other way in the event of an insolvency?
Q2: Would any of the taxes included in this measure pose any particular challenges to insolvency office holders when they process HMRC claims?
Q3: Do you foresee additional administrative burdens falling upon individuals, businesses or insolvency practitioners as a result of this measure? If any, how might they be lessened?
Q4: Do you consider the objectives of any type of formal insolvency procedure will be adversely affected by this measure? If so please evidence or explain why. Please suggest how we could mitigate against this.
Q5: Are there any transitional issues that we need to take into consideration in implementing this measure?
Q6: In your view, are there any other considerations, or other potential impacts that HMRC should take into account in implementing this measure?
Q7: Do you have any comments on the assessment of equality or other impacts?
Responses are invited by email by 27 May 2019 to
Useful links:
Budget 2018: Protecting your taxes in insolvency
Finance Act 2019: tax update & rolling planner 2019-20
External: