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Budget 2020: Coronavirus and Crown preference

Budget 2020: Coronavirus and Crown preference

11 March 2020

Earlier today, the Chancellor of the Exchequer, the Rt Hon Rishi Sunak MP, outlined the first Budget of the Boris Johnson Government - and the first Budget statement in almost eighteen months.

The major headlines from today are that:

- The Budget Red Book confirmed that HMRC will regain its preferential status for some tax debts from 1 December 2020 rather than 6 April 2020 as originally planned. The preferential status proposals are otherwise unchanged from what was put to consultation last year.

- The Budget made no changes to plans to give HMRC the power to make directors and others personally liable for corporate tax debts in some circumstances. This measure is expected to be included in the upcoming Finance Bill.

- The Government is launching a '£30bn' fiscal stimulus package to help businesses and individuals through the Coronavirus outbreak (although only £12bn is Coronavirus-specific). Key measures include:

  • Extra resources for the NHS ("whatever it costs");
  • Extended and earlier sick pay cover for workers; and
  • Support for businesses, including: a 'scaled up' Time to Pay scheme; statutory sick pay refunds for SMEs; and a new Coronavirus Business Interruption Loan Scheme which will see loans of up to £1.2m supported by an 80% Government guarantee. There will also be a year-long Business Rates holiday for businesses (with a rateable value below £51,000) in the retail, leisure, and hospitality sectors. Any business eligible for SME Rates Relief will be eligible for a £3,000 grant.

- The Chancellor loosened the purse strings, promising £175bn of funding for "future prosperity" over the next five years. The Government's fiscal framework will also be reviewed. 

- Alcohol and fuel duties have all been frozen for the next 12 months.

- Entrepreneurs' Relief has been capped but not scrapped. The lifetime limit has been reduced from £10m to £1m. This will fund an increase in the R&D expenditure credit, the structures and buildings allowance, and the employment allowance.

- The Chancellor has announced significant additional funding for nationwide R&D, with government investment rising to £22bn.

- The Chancellor also announced an £800m investment in a new national research agency.

- The Budget continued the Government's 'levelling up' agenda, with plans for new funding settlements for the regions announced alongside plans to move 22,000 civil servants out of London. There will be £600bn of capital investment over the next five years.

- The Budget contained some tax tweaks:

  • The Chancellor will be scrapping VAT on digital publications from 1 December 2020;
  • VAT on sanitary products will be scrapped from 1 January 2021 (once the Brexit transition period ends);
  • A new 2% 'digital services tax' on the UK revenues of search engines and social media sites will be introduced from 1 April 2020; and
  • A planned cut in Corporation Tax has been axed, and it will remain 19%.

You can see all the details of the Chancellor's Budget proposals on the Treasury website. R3's reaction to the Budget is here.


Sunak did not have the ideal preparation for his day in the spotlight: the need to alleviate pressure placed on businesses by the Coronavirus outbreak has stolen his thunder. In other circumstances, the Government's big focus would have been on its plans to 'level up' the UK economy. Instead, this morning's surprise 0.5% cut in the base rate was the first sign of coordinated moves by the Bank of England and Government to help the economy navigate the outbreak.

Ahead of the Budget on the 'business as usual' side of things, there were questions over whether the Government would rip up the fiscal rules which prevent it from borrowing to fund day-to-day spending. The £600bn splurge on infrastructure was promised in this morning's papers. Further speculation surrounded the future of Business Rates, Entrepreneurs' Relief, and the fuel duty freeze.

The Budget & Insolvency

Other than the support for Coronavirus-affected businesses and workers, the two key Budget stories for the insolvency and restructuring profession are announcements on HMRC's planned return to preferential status in insolvencies and proposed measures to tackle the (ab)use of insolvency procedures as a means to avoid tax.

The Budget has confirmed that:

  • Some HMRC debts will be elevated to preferential status in insolvencies from 1 December 2020 and not from 6 April 2020 (as originally planned). The Budget has also clarified that the policy will also apply to Northern Ireland.
  • Not all HMRC debts will qualify for preferential status. Affected tax debts include those "collected and held by businesses on behalf of other taxpayers" such as PAYE debts, employee NICs debts, Construction Industry Scheme payments, and VAT debts.
  • HMRC will have the power, from 6 April 2020, to make directors - and others - personally liable for corporate tax debts in situations where they are suspected of abusing the insolvency framework in order to avoid paying taxes. When applying this new power, HMRC will be focusing on 'phoenix' situations or where those linked to a company have a 'track record' of insolvency. The liability notice may be applied pre- or post-insolvency.

HMRC's Preferential Status

We're frustrated that the Government has not listened to the feedback from R3 and others regarding the preferential status proposals. What the Government is planning is seriously problematic. A delay in the introduction of the policy is a minor plus, but the Government has announced no other mitigating steps.

Earlier this week, a warning from R3 and other business groups regarding the impact of the Government's policy was covered by the Daily Telegraph. This morning's Daily Telegraph also noted that it would be odd to press ahead with the policy now given the pressure businesses are under.

Since the policy was first announced, R3 has met dozens of MPs, officials, journalists, and stakeholders to raise the profession's concerns with the Government's proposals. Questions have been asked in parliament, and our work has been covered in the press. We're also aware of R3 members writing to their local MP about the policy. Thank you to everyone who has taken part in our campaign.

The policy will now be included in the Finance Bill 2020. This will be published next week and debated by MPs. R3 will work with our contacts inside and outside parliament to encourage the Government to think again.

Personal Liability for Corporate Tax Debts

The Budget has confirmed the introduction of proposed changes to tax liabilities where 'abuse' of the insolvency framework is suspected. Unlike the return of HMRC's preferential status, this policy was subject to a consultation before being included in the 2018 Budget, and it has not been significantly updated since then.

Our concerns with this policy have been that it could have significant unintended consequences. At a high level, the policy is an obvious challenge to the long-established principle of limited liability. Looking at the detail, the legislation's woolly drafting has also been a worry. How will HMRC decide that there is a 'risk' of abuse of the insolvency framework? Turnaround professionals can have a 'track record' of insolvency as a result of the nature of their job - will they be affected? The text of the draft Finance Bill, published last year, was not fit for purpose.

There has been some progress over the last year: officials have acknowledged R3's concerns and have flagged that these will be dealt with in yet-to-be-published guidance to accompany the legislation. Ministers have indicated that a liability notice will not be applied to those whose involvement in a business has been to help rescue it. We will continue to push for much-needed clearer parameters and checks on the power.

Keep a look out for R3 updates on this policy over the course of 2020.

The Prescribed Part

Not included in today's Budget is the news that the Prescribed Part will increase to from £600,000 to £800,000 from 6 April 2020. This unheralded change was made on 5 March with the publication of a Statutory Instrument which made amends to the Insolvency Act 1986.

This change was first proposed in the Insolvency Service's March 2018 'Insolvency & Corporate Governance' consultation, pre-dating the plan to restore HMRC's preferential status by several months.

Although the Prescribed Part was first introduced as part of the 2002 deal which saw HMRC's preferential status scrapped, the Insolvency Service has remained committed to increasing the ringfence despite the impending return of HMRC's privileged position.

Lenders and their representatives have described the return of HMRC's preferential status and the increase in the Prescribed Part as a 'double-whammy'.

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