HMRC Creditor

HMRC the biggest business creditor. WHY?

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Why is the HMRC the biggest business creditor?

Why is the HMRC the biggest business creditor? Because since the Enterprise Act of 2002, HMRC lost its preferential creditor status.

However, with effect December 1st,2020. Changes took effect. HMRC became a preferential creditor in insolvencies. This followed the ‘Finance Act 2020‘ which gained ‘Royal Assent’ July 22nd, 2020. 

So, HMRC remains listed as being the largest creditor of a failed company. Directors, however, when facing a severe negative cashflow, start to treat supplier creditors in preference, too, therefore, ensure the ongoing of a potentially failing business. Therefore normally, suppliers priorities over the HMRC. Potential preference claims, therefore in the future.

HMRC tax payments do pay in instalments; Thus, directors fail to ensure 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 cost as they send enforcement officers to your business premises, threaten winding-up petitions. What types of HMRC debt exist, and how may our team at HBG Advisory assist you in removing stress?

HMRC: Published Figures

A third party independent review, states the HMRC has been shown as the largest creditor, in approx 65% of liquidations over 2017 in the UK. Transpires this a case of how the tax system operates in the UK? or companies continue to spring up, without sufficient funding?

The HMRC, however, continues normally as a creditor by default, as all companies required to be registered with HMRC.

HMRC: Unsecured Creditor

The HMRC no longer remains a preferential creditor. They, therefore, rank along with unsecured creditors.

HMRC had its ranking removed as a preferential creditor under the Enterprise Act in 2002 and actioned on the 15 September 2003. Hence, this weakened their position on securing payment, hence, the very active approach to collecting money.

As time has moved on, however,  it has been proposed that HMRC then move to rank as a preferred creditor. From 1 December 2020, a business enters an insolvency process, more taxes paid in by employees and customers, and held by the business, therefore will be directed to fund public services rather than other creditors. From April 2020. This only applies to PAYE, team member NIC and VAT (corporation tax arrears excluded). However, how the COVID pandemic will then affect matters remains to be seen. Be assured; this will not affect HMRC’s focussed approach collecting payments overdue.

Economic Impact of Preferential Change

The government does not expect any significant economic impact of this change. It, therefore, affects financial institutions and security moving forward. However, the government states it does not expect it to have a notable bearing on UK lending.

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HMRC Creditor
HMRC Creditor
HMRC Creditor
HMRC Creditor
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