Business groups state serious concerns with Government’s tax and insolvency plans
Leading UK business groups and insolvency experts yesterday advised the Government to reconsider its plans to prioritise repayments to HMRC over repayments to other creditors in insolvencies from 6 April 2020.
In a joint statement distributed before the 2020 Budget, the groups warned the new Chancellor that the Government’s proposals will adversely affect access to finance for businesses, with potentially harmful consequences for the UK economy.
The statement was made by a number of entities:
- R3, the insolvency and restructuring trade body
- UK Finance
- The Alternative Credit Council (ACC)
- The British Property Federation (BPF)
- The British Private Equity & Venture Capital Association (BVCA)
- The City of London Law Society (CLLS)
- The Chartered Institute of Credit Management (CICM)
- The Insolvency Practitioners Association (IPA)
- The Institute of Chartered Accountants in England and Wales (ICAEW)
- The Institute of Chartered Accountants Scotland (ICAS)
- Professor Peter Walton of the University of Wolverhampton
The groups stated:
“The Government’s plans to grant some tax debts ‘preferential status’ in insolvencies remain a serious concern, and the upcoming Budget is the Chancellor’s last opportunity to avert an avoidable error.
“Without mitigation or a reversal of its policy, the Government will inadvertently damage access to finance for UK businesses. This will be bad news for both business rescue and business growth at a time when the UK economy needs support.
“The policy may increase the knock-on effects of insolvencies on supply chains, customers, consumers, and pensions. Ultimately, the policy could lead to a small, short-term gain for HMRC at the expense of long-term damage to the economy. The Government must change course.”
In a joint letter, the groups said the Government’s plans would be: “Likely to undermine confidence in trading, lending, and investing in the UK economy. [The plans] will also not help make the UK a good place to do business. And, with the UK preparing to leave the EU, and with businesses already facing a number of economic challenges, the timing of this move is particularly unhelpful.”
The Government is proposing that, from 6 April 2020, certain tax debts owed by an insolvent company – including VAT, PAYE, and employee NICs – will be repaid to HMRC before debts secured against ‘floating charge’ assets.
This will significantly impact on finance secured against assets such as raw materials, stock, work in progress, intellectual property and other floating charge assets which are important security for many businesses involved in manufacturing, wholesale and retail, as well as some high-tech firms.
The proposed measure, which was announced with no consultation, during the 2018 budget, will also impact on unsecured creditors, including a company’s pension scheme and its suppliers.
The concerns are that other creditors will lose out, thus making lending, particularly to struggling businesses, a riskier proposition. It will reduce the amount of money which reaches businesses, consumers and pension schemes after companies become insolvent.
Duncan Swift, President of insolvency and restructuring trade body, R3, said:
“We understand the Government’s motivation for the change, but it’s missing the bigger picture and potentially setting a course that will do more harm than good.
“If the Government really wanted to improve HMRC returns from insolvencies, there are lots of ways to do so without damaging other creditors. Proactive, consistent and commercially-minded engagement from HMRC in insolvency and restructuring situations would be better for everyone.”
Read more on this story at R3.org.uk