Government plans to make HMRC a preferential creditor in insolvencies should be scrapped to give North East businesses struggling in the face of the coronavirus pandemic a better chance of survival.
Alexandra Withers, North East chair of insolvency and restructuring trade body R3, has called on the Government to listen to the widespread industry concerns that the proposals will have a significant negative impact on access to finance for UK businesses and their resulting ability to get past the trading difficulties they’re facing.
The change, which was included in the second reading of the Finance Bill which begins today (Monday 27 April), will enable HMRC to recover in priority to other unsecured creditors taxes such as PAYE, VAT and National Insurance which have either been paid to insolvent businesses by their customers or which are being held in respect of their employees.
Up to now, all HMRC debt has been unsecured, which puts the taxman on an equal footing with other unsecured creditors, and the extra money which will be repaid to it will come out of funds which would otherwise have been paid to creditors including trade creditors, lenders and pension schemes.
Alexandra Withers, who is an associate solicitor in the insolvency department of Short Richardson & Forth Solicitors, says: “This damaging policy risks undermining the work the Government has done over the last few weeks to protect businesses and preserve jobs in the face of Covid-19 and the subsequent lockdown.
“If a business rescue attempt doesn’t succeed or can’t start because the business can’t access the finance it needs, everyone loses out – the company enters an insolvency procedure, jobs are lost, and the Treasury misses out on tax receipts.
“This is not the way for HMRC to go about maximising the amount it receives from insolvencies. It already made no sense for these proposals to go ahead before, makes even less sense now and still won’t add up even when the economy has recovered.”
A survey of R3’s members carried out last year showed that nearly four-in-five (78%) of respondents from the insolvency and restructuring profession feared the proposals would make it harder to rescue businesses.
Eighty-three percent thought the plans would make it harder for firms to access the funding they need, while 85% felt that any negative impact the proposals may have outweighed the Government’s justification for introducing the change.
Financial services trade body UK Finance estimated the policy could hit lending by at least £1bn per year even before the coronavirus outbreak.
Alexandra Withers continues: “The Government’s policy will hurt floating charge lending in particular, which is a type of lending against stock or work in progress that’s really important for retailers and small businesses – exactly the type of businesses most in need of help at the moment.
“At a time when the business community is in crisis, the Government needs to listen to the concerns of experts and explore other options for increasing tax revenue from insolvencies – ones that don’t damage other creditors, don’t make it harder to rescue businesses and don’t put businesses and jobs at risk unnecessarily.”