HMRC Regains Preferential Status for Insolvencies after 1st December 2020

The Finance Act 2020 provides for HMR & C to regain preferential status for certain debts including PAYE, Employees NIC, VAT, student deductions and CIS deductions. The new status is only relevant for insolvencies that commence after 1 December 2020.

Current Preferential Creditors

At present the only creditors that have preferential status are employees for arrears of wages and holiday and Financial Services Compensation Scheme “FSCS”.

For new insolvencies where the approval date is after 1 December 2020, HMR & C will join FSCS as a secondary preferential creditor in relation to the type of debts referred to above.

The preferential status is limited to outstanding taxes which are deducted from an employee’s salary or deducted from customers and are held on behalf of The Revenue “deducted taxes”.

HMR & C will remain as an unsecured creditor for corporation tax or any other tax owed directly by the trading entity which includes all trading entities including companies, partnerships, sole traders, charities, etc.

How does this affect insolvencies?

What this means for insolvency processes including administrations, liquidations, Company and Individual Voluntary Arrangements, which commence post 1 December 20, HMR & C will jump up the queue above both secured and unsecured creditors and if there are surplus funds to distribute to creditors, HMR & C will be 2nd or 3rd in the queue after creditors with a fixed charge and employees as detailed.