HMRC Set To Rank Higher Among Creditors

Insolvent business will soon see HMRC moving up the rankings among creditors when new insolvency measures are introduced in 2020.  

In the past HMRC was always a priority creditor until 2002 when the Enterprise Act was introduced and put into place in 2003 classing them as an unsecured creditor. This meant HMRC was relegated to 4th place among creditors making it less likely the organisation would be able to receive all the money owed prior to a business being liquidated.   

Prior to the change which comes into force in April 2020 a business that finds itself entering insolvency proceedings will need to pay creditors in the following order:  

Fixed charge creditors 

Preferential creditors 

Floating charge creditors 

Unsecured creditors 

HMRC currently belongs in the unsecured creditor bracket.  

HMRC will certainly benefit from the extra revenue this change is likely to bring in. The losers will likely be other unsecured creditors who will now be pushed further behind in the queue. Lenders too are likely to be affected which will increase their risk and potentially push up borrowing costs for businesses.  

Businesses hoping to escape their tax obligations by going insolvent may find themselves being put further under the microscope as the government aims to tackle the problem of tax avoidance.