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Written By:

John A Waller


Reviewed: May 9th,2021

Why is HMRC the biggest business creditor

Why is 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 then took effect. HMRC to rank at a preferential creditor in insolvencies. This therefore followed the ‘Finance Act 2020‘, which gained ‘Royal Assent’ July 22nd, 2020. 

So, HMRC remains the largest creditor of a failed company. Directors, however, start to treat supplier creditors in preference, and 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 pay instalments. Therefore, 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, 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 HMRC was the largest creditor, in approx 65% of liquidations over 2017 in the UK.

The HMRC, however, continues as a creditor, as all companies must be registered with HMRC.

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

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

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