HMRC the preferential creditor

The UK government has confirmed that it plans to reinstate Crown Preference from December 2020.

This effectively means HMRC regains its preferential treatment in business recovery and insolvency procedures, leapfrogging ahead of non-preferential and floating charge holders – often banks – which is a cause for concern, particularly for small businesses who are more likely to be squeezed out of a key source of funding due to lack of support.

Under current insolvency legislation HMRC is classified as an ordinary unsecured creditor, meaning it is at the very bottom of the pile, below preferential creditors and floating charges. The new legislation flips the hierarchy.

Smith Cooper’s, Dean Nelson, said: “Not only is Crown Preference unfair on unsecured creditors, there are concerns it will deter business rescue procedures. The uncertainty that Crown Preference introduces is likely to have an impact on both access to and the cost of finance, possibly deterring business growth, which in the long term could mean less tax income for HMRC.”