The government has published a summary of responses to the consultation “Protecting your taxes in insolvency” alongside draft legislation to be included in Finance Act 2020.

The consultation considered measures to make HMRC a secondary preferential creditor for certain tax debts on the insolvency of a business, including VAT, PAYE (including student loan repayments), employee NICs, and Construction Industry Scheme Deductions.

The proposed change would see HMRC becoming a preferred creditor for these taxes for insolvencies beginning on or after 6 April 2020 but with no time limit for what could be included. They would remain an unsecured creditor for corporation tax and employer NICs.

Respondents from the finance community said they expected greater burdens on lenders and businesses as they will need start factoring tax debts into lending reviews. There were also concerns about loss of appetite for asset-based lending to SMEs.

The government says it does not expect the reform to significantly impact access to finance but whether this will actually be the case remains to be seen.

Links to our guides:

Ceasing trading

Finance Act 2019: tax update & rolling planner 2019-20

External links:

Protecting your taxes in insolvency: summary of responses

Draft legislation

Budget 2018: Protecting your taxes in insolvency