Why making HMRC a preferential creditor is bad for business

GOVERNMENT proposals that would make HMRC one of the leading creditors in insolvency cases could have damaging implications for the business community, a leading insolvency expert has warned.

At the moment HMRC has had to take its place in line with all other creditors when trying to reclaim money from a failing business.

But proposed changes to the current system which are about to enter a period of consultation following an announcement in last year’s budget, would see money that could previously have gone to creditors being directed the government.

“There is a real concern among lenders that if they are not paid in the way they have been for more than a decade now, it will have a knock on effect on the availability of credit,” said Deborah Lockwood, of Sheffield insolvency and business turnaround specialists Graywoods.

“Removing some of the money that would have gone to lenders and giving it to HMRC can only be a retrograde step and it makes HMRC very influential in deciding whether a company is going to be allowed to be given the chance for turnaround and rescue.


“HMRC are not experts in business turnaround, though, so you are giving civil servants quite an onerous task that I suspect they will not even want.

“The proposals will take money away from other groups of creditors but in the majority of cases the amount of money will have very little impact on the public purse but could have a major impact on smaller local creditors who can least afford to suffer the effects of bad debt.”

The changes are not scheduled to come into force until 2020 but Deborah said that even with a period of consultation it was unlikely that the proposal would not be adopted.

“Quite simply, it is making HMRC a preferential creditor and will take away from other creditors any sense of security that they may have felt,” she said.

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