Budget 2018: HMRC preferred creditor status - R3 comment

29 October 2018

In response to the announcement in today's Budget that HMRC will become a secondary preferential creditor for taxes held on behalf of employees and customers, Emma Lovell, chief executive of insolvency and restructuring trade body R3, says:

"The announcement that HMRC is to partially regain its preferred creditor status in business insolvency could potentially be a retrograde and damaging step to UK plc if not thought through carefully. It will amount to a tax on creditors, including small businesses, pension funds, suppliers, and lenders, and reverses a status quo that has been encouraging business rescue since 2002. It may also make borrowing for small businesses harder to come by.

"R3's members report that HMRC could do more to engage actively in insolvency procedures, and at an earlier stage. HMRC has a wide-ranging toolkit to help it to tackle abuse and evasion, which could be used more fully, instead of forcing its way to the top of the queue by legislation.

"HMRC considers itself to be an 'involuntary creditor' of businesses, because it cannot choose which companies to engage with. However, all suppliers to businesses are 'involuntary creditors' and have to take commercial risks, and this announcement will hugely increase the risks taken by small enterprises trying to do business.

"The Government has moved in recent months to improve and strengthen the UK's business rescue framework, which R3 has welcomed. However, this announcement risks throwing away much of the recent progress that has been made.

"We hope that the Government will reconsider this move and listen to concerns of the insolvency and restructuring profession as it consults on the issue over the coming months."