Business groups raise concerns over government’s tax and insolvency plans

The government plans, confirmed in the draft Finance Bill last year, prioritise the repayment of some tax debts in insolvencies from April 2020.

Under the plans, certain debts owed to HMRC, including PAYE, employee National Insurance contributions, and VAT, will be repaid in priority to debts owed to floating charge holders and unsecured creditors. Currently, all HMRC debt is unsecured.

Opponents of the changes have warned that the extra money which will go back to HMRC will come at the expense of payments to other creditors. This, they argue, will make lending, particularly to struggling businesses, a riskier proposition.

In a joint statement ahead of the budget on 11 March, the groups have written to the new chancellor, Rishi Sunak, arguing that the government’s proposals will damage access to finance for businesses, with harmful consequences for the UK economy.

The statement has been made by:

• R3
• UK Finance
• The Alternative Credit Council (ACC)
• The British Property Federation (BPF)
• The British Private Equity & Venture Capital Association (BVCA)
• The City of London Law Society (CLLS)
• The Chartered Institute of Credit Management (CICM)
• The Insolvency Practitioners Association (IPA)
• The Institute of Chartered Accountants in England and Wales (ICAEW)
• The Institute of Chartered Accountants Scotland (ICAS)
• Professor Peter Walton of the University of Wolverhampton.

Their joint statement said: “The government’s plans to grant some tax debts ‘preferential status’ in insolvencies remain a serious concern, and the upcoming budget is the chancellor’s last opportunity to avert an avoidable error.

“Without mitigation or a reversal of its policy, the government will inadvertently damage access to finance for UK businesses. This will be bad news for both business rescue and business growth at a time when the UK economy needs support.

“The policy may increase the knock-on effects of insolvencies on supply chains, customers, consumers, and pensions. Ultimately, the policy could lead to a small, short-term gain for HMRC at the expense of long-term damage to the economy. The government must change course.”

The business groups previously wrote to then-chancellor Sajid Javid MP in September 2019 as part of a consultation on the draft Finance Bill and ahead of a planned December 2019 Budget.

In a joint letter, the groups said: “(Crown preference is) likely to undermine confidence in trading, lending, and investing in the UK economy. The plans will also not help make the UK a good place to do business. And, with the UK preparing to leave the EU, and with businesses already facing a number of economic challenges, the timing of this move is particularly unhelpful.”