Controversial plans to move HMRC up the list of creditors during an insolvency process have been pushed back to December 2020.
Former chancellor Philip Hammond announced in his 2018 Budget that HMRC would be given preferred creditor status in business insolvencies to ensure tax is collected.
This was mentioned again in current chancellor Rishi Sunak’s first Budget today, but its introduction has been pushed back from April this year to December.
“As announced at Budget 2018, the government will change the rules so that when a business enters insolvency, more of the taxes paid in good faith by its employees and customers and temporarily held in trust by the business go as intended to fund public services, rather than being distributed to other creditors,” the Budget document said.
“The Budget delays the commencement date of this measure from 6 April to 1 December 2020 and extends this measure to Northern Ireland.
“This reform will only apply to taxes collected and held by businesses on behalf of other taxpayers, VAT, PAYE income tax, employee national insurance contributions.
“The rules will remain unchanged for taxes owed by businesses themselves, such as corporation tax and employer NICs.
“The legislation will be introduced in Finance Bill 2020.”
Currently, when a business goes into administration, the first funds go to paying the administrator, followed by any fixed charge such as on a property.
The next preferential creditors are employees, who will get their wages paid from any funds left, followed by those with a floating charge.
HMRC is currently an unsecured creditor and gets paid last, but the shakeup means the taxman will soon rank just after employees as preferential creditor and ahead of those with a floating charge.
There have been warnings that this could hit P2P lenders who take floating charges as a security.