Insolvency – Budget 2020

19 Mar 2020

HMRC to be preferred creditor in insolvency.

The Chancellor Rishi Sunak presented his first Budget on Wednesday 11 March 2020 In this series, we focus on the tax measures which may affect you, your family and your business. To help you decipher what was said we have included our own comments. If you have any questions please contact us for advice.

In this edition of our Budget 2020 series, we focus on Insolvency.

Draft legislation has been issued to amend insolvency legislation from 1 December 2020. Broadly, HMRC will move up the creditor hierarchy for the distribution of assets in the event of an insolvency. HMRC will become a secondary preferential creditor in respect of certain tax debts held by a business which represent amounts paid by customers or employees. The taxes include VAT, PAYE, employee NICs and Construction Industry Scheme deductions.

The rules will remain unchanged for taxes owed by businesses themselves, such as Corporation Tax and employer NICs.

Draft legislation has also been issued to make directors, and other persons connected to companies subject to an insolvency procedure, jointly and severally liable for amounts payable to HMRC by the company in certain circumstances. This is mainly for cases where the company has engaged in avoidance, evasion or ‘phoenixism’. This measure applies to all tax periods ending, and to facilitation penalties determined and issued, after the date of Royal Assent of the next Finance Act.

Comment:

The rationale for HMRC to become a preferential creditor for certain taxes is that the taxes represent payments by customers (such as VAT) or deductions from employees (such as PAYE) and these amounts should ‘go to fund public services rather than being distributed to other creditors’.

For more information or to discuss how we can help you effectively structure your finances for tax and save you money, contact Paul Attridge or your usual Beavis Morgan Partner.

Our experts at Beavis Morgan take the hassle of dealing with HMRC away from you, so you don’t need to deal directly with them. We are also able to advise on all aspects of tax whether compliance or planning.

If you have any concerns about your personal or business financial situation, our experts at Beavis Morgan group business, BM Advisory, are able to assist. We specialise in finding innovative solutions for businesses and individuals in distress. Contact Andy Pear or Mike Solomons of BM Advisory for more information and an initial free consultation.

Other articles in our Beavis Morgan Budget 2020 series include:

Employment Tax

Business Tax

Capital Taxes

Value Added Tax

Plastic Packaging Tax

For Rates and Allowances 2020/21, view the full Beavis Morgan Budget 2020 Summary Report.

You can also follow our Beavis Morgan LinkedIn page to keep up with key developments in tax and the impact these changes might have on you and your business.