HMRC largest creditor in the UK

Why is HMRC the biggest business creditor

Why is HMRC the biggest business creditor? Author: John A Waller. Reviewed: July 22nd, 2024.

Since the Enterprise Act of 2002, HMRC has lost its preferential creditor status.

However, with effect December 1st, 2020, changes then took effect. HMRC was to rank as a preferential creditor in insolvencies. This, therefore, followed the Finance Act 2020, which gained ‘Royal Assent’ on July 22nd, 2020. 

So, HMRC remains the largest creditor of a failed company. Directors, however, start to treat supplier creditors in preference and ensure that a potentially failing business is ongoing. Therefore, suppliers typically prioritise the HMRC—potential preference claims to sort in the future.

HMRC tax payments pay instalments. However, company directors fail to ensure that monies remain available to pay HMRC debt. Therefore, companies incur severe penalties for unpaid tax debt, increasing the tax burden on your business. Therefore, failure to pay the HMRC generates further costs, as they send enforcement officers to your business premises and threaten winding-up petitions. What types of HMRC debt exist, and how may the team at HBG Advisory help you remove stress?

HMRC: Published figures

A third-party independent review states that HMRC was the largest creditor in approximately 65% of liquidations in the UK in 2017.

The HMRC, however, continues as a creditor, as all companies are required to register with the HMRC.

As of December 1st 2020, any business entering insolvency requires more taxes to be deducted from employees and customers and withheld by the company. These taxes will now be paid to HMRC before the business’s creditors.

This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers. The included charges are:

  • VAT;
  • PAYE Income Tax;
  • Employee National Insurance contributions;
  • Student loan deductions;
  • Construction Industry Scheme deductions.

The rules have not changed unpaid taxes by businesses themselves, like:

  • Corporation Tax;
  • Employer National Insurance contributions.

Economic Impact of Preferential Change

The UK government does not believe this change will have any significant economic impact. Therefore, it affects financial institutions and security moving forward. The government does not expect it to have a significant impact on UK lending.

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