Government plans to repay the taxman ahead of pension schemes, trade creditors and lenders in corporate insolvency procedures are a ‘frustrating and misguided cashgrab’ that could see North East businesses and individuals unfairly losing out on what they’re owed.
That’s the view of Andrew Haslam, North East chair of insolvency and restructuring trade body R3, in response to the start of a three month consultation on whether HMRC should regain secondary preferential status for some business taxes.
The move was first announced by Chancellor Philip Hammond in his Autumn Budget last year and is designed to enable HMRC to more easily recover taxes being held by insolvent businesses which have either been paid to them by their customers, such as VAT, or which are being held by the business in respect of their employees, such as PAYE and National Insurance contributions.
But R3 believes that any such change will unfairly impact on creditors who are already in significant danger of losing some or all of what they are owed, and that it’s actually likely to reduce the revenues that the taxman can collect in the longer term.
HMRC was treated as a preferential creditor in cases of corporate insolvency until 2003, when a change in the law meant its claims were considered alongside those of other unsecured creditors, rather than ahead of them.
Andrew Haslam, who is also head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “The Government’s decision to push ahead with the return of ‘Crown Preference’ is frustrating and misguided, and could undo fifteen years’ worth of progress on building an enterprise culture.
“It’s a short-sighted plan for a quick cash grab for the Treasury at the expense of long-term damage to the UK’s enterprise and business rescue culture, and to businesses’ access to finance.”
In insolvency procedures, creditors are repaid according to a strict hierarchy set out in law. Because an insolvent company is very unlikely to be able to repay all its debts, the lower a creditor is down the order, the less of their money they are likely to see back, if any at all.
Andrew Haslam continues: “More money back to the Treasury increases the impact of insolvency on everyone else. It’s not just lenders who will be worse off, but an insolvent company’s pension scheme and trade creditors as well, and while the Treasury may see some extra money back every year as a result of the change, it’ll be counting the cost of missing tax income and added tax losses in later years.
“Tighter access to finance for business means more business failure, fewer growing businesses to generate tax receipts, and higher redundancy payouts for the Government to cover.
“We made our concerns about these plans clear as soon as they are announced and hope the Government listens to the views of the professionals who are charged with getting the best possible returns for the creditors of failed businesses.”